Challenger banks say RBS lending blueprint flawed
(5 June 2017 – United Kingdom) Royal Bank of Scotland’s (RBS) plan to increase competition in the small business lending market is flawed, a group of UK’s challenger banks claims.
As part of penalties imposed on RBS for its 2008 bailout, the bank is to set up a £750 million fund aiming to help rivals bolster their business banking capabilities and win more customers.
However, a group of challenger banks has written to the European Commission highlight inadequacies in the plan proposed by the UK Treasury earlier in the year. The initial plan included RBS closing 300 branches, and creating a new bank under the Williams & Glyn brand.
The £750 million fund is meant to incentivise RBS’s small business customers to move their current accounts to challenger banks, alongside other measures. These proposals feel cosmetic and are unlikely to bring about the real competition the introduction of a new challenger bank was supposed to deliver.
According to reports, 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. As a result, challenger banks, most of which do not offer that product, will have access to the remaining businesses.
Speaking to the Financial Times, CEO of Secure Trust Bank, Paul Lynam, said that too much focus is placed on switching current accounts to other major banks, as opposed to the more lucrative lending business. “The majority of challenger banks do not offer business current accounts and have no interest in doing so, because they will be lossmaking,” Lynam said.
“A remedy to move two percent 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.”
An RBS spokesperson 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.”
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.