Banks face inquiry into small-business lending

Banks face inquiry into small-business lending

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A full-scale competition inquiry into small business banking is expected to be announced today to address concerns that the biggest high street banks enjoy a monopolistic stranglehold on the sector.

The newly created Competition & Markets Authority (CMA) is due to announce whether it will expand a market study into a full-blown inquiry.

The last significant investigation was the Cruickshank review 15 years ago, which found that the largest banks were overcharging small business customers but led to few meaningful reforms.

The sector is dominated by the Royal Bank of Scotland, Barclays and Lloyds Banking Group, although challengers such as Santander and, on a smaller scale, Handelsbanken and Aldermore are pushing to win market share.

Any investigation is likely to look at whether new entrants are constrained because of adverse capital and funding requirements or the disadvantage of small-scale banking.

The carving-out of TSB from Lloyds and, in due course, of Williams & Glyn from RBS is creating new competitors, but small firms are far from happy that the industry is competitive enough. Many still complain that the supply of credit is constrained and the price too high.

Vince Cable, the business secretary, has put fresh pressure on RBS to speed up its disposal of Williams & Glyn in order to boost competition.

The 314 branches of RBS earmarked to be sold off and rebadged Williams & Glyn are thought to have 5 per cent of the small business market and are regarded as an important new challenge to the incumbents.

Dr Cable published a letter to Ross McEwan, the RBS chief executive, in which he urged him to explore new ways to speed up the disposal, for example by rebranding the branches early. He also requested “a clear timeline” from RBS setting out stages for a full divestment.

Under a reworked timetable agreed between the Treasury and the European Commission, RBS has to float the Williams & Glyn business by December 2016 and sell any residual stake by December 2017. An earlier timetable was abandoned after plans to sell the branches to Santander collapsed because of the enormous IT challenge.

RBS, which is 80 per cent owned by taxpayers, has to divest the business as a condition of receiving £45.5 billion of state aid when it was rescued in 2008-09. It had no comment last night.

The CMA is also due to issue an update today on its review into the personal current account market.

The new official switching service, which was introduced last year, and the entry of new players such as Tesco Bank and Marks & Spencer Bank has eased the pressure for a full competition inquiry.