Challenger banks criticise RBS business lending plan

Royal Bank of Scotland’s plan to boost competition in the small business lending market is flawed, a group of new UK banks has warned Brussels.

RBS is to set up a £750m fund aiming to help rivals bolster their business banking capabilities and win more customers, as a penalty for its £45.5bn state-backed rescue during the 2008 financial crisis.

A number of so-called challenger banks have written to the European Commission flagging shortcomings in RBS’s blueprint for the fund.

The plan, proposed by the UK Treasury earlier in the year, was designed to replace RBS’s attempts to shed 300 branches and create a separate bank under the Williams & Glyn brand.

That project was hit by numerous delays over seven years, largely due to technological problems, and ended up costing nearly £2bn. RBS was then required to divest from Williams & Glyn under European Commission rules for receiving a state bailout during the financial crisis.

The European Commission will assess the feedback from banks and other parties over the coming weeks before responding with its view on the fund proposal.

RBS is the biggest lender to small businesses in the UK, followed by the other three large high-street banks — HSBC, Barclays and Lloyds Banking Group. Reducing RBS’s market share and boosting rival lenders could increase options for small businesses seeking to borrow.

But challenger banks have written to the commission ahead of Sunday’s deadline for feedback on the plan, highlighting problems with its construction.

The £750m fund is meant to incentivise RBS’s small business customers to move their current accounts to challenger banks, alongside other measures.

However one banker, who wished to remain anonymous, said the fund is split into two tiers. The top tier gives rival banks with existing current account facilities, which comprises large lenders such as Santander, first refusal.

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This means smaller challenger banks, many of which do not offer current accounts, will be left only with the remnants of the pot.

Paul Lynam, chief executive of Secure Trust Bank, told the FT that too much of the plan is focused on moving business current accounts to other banks, rather than lending, which is the profitable part of the business.

“The majority of challenger banks do not offer business current accounts and have no interest in doing so, because they will be lossmaking,” Mr Lynam said.

“A remedy to move 2 per cent of its business current account market share to other banks is significantly less effective than the remedy that was imposed upon them by the EU in 2009.

“Had RBS not been bailed out, it would have gone bust and its 25 per cent market share would have been spread across a whole host of existing and new banks.”

A spokesperson for Aldermore said: “These proposals feel cosmetic and are unlikely to bring about the real competition the introduction of a new challenger bank was supposed to deliver”.

Other high-profile figures have been critical of the plan in recent months.

Andrew Tyrie, former chairman of the Treasury select committee, said recently in a letter to chancellor Philip Hammond, that subsidising new entrants “is probably not a sustainable way to increase SME banking competition”.

An RBS spokeswoman said: “We believe that the proposed package of measures would provide increased competition in the SME marketplace. We now await the conclusion of the consultation and a formal decision by the EC so that we can move forward towards an assured solution.”

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