Call for competition inquiry into banking services for Scottish SMEs

Published on Wednesday 4 November 2009 20:20

MSPs are pressing for a competition inquiry into small business banking in Scotland amid warnings that the restructuring of Royal Bank of Scotland and Lloyds Banking Group will do little to improve the "duopoly" governing SME lending north of the Border.

Members of the Scottish Parliament's economy committee yesterday called on the Office of Fair Trading (OFT) to look into access to finance for Scotland's army of small firms.

Committee convener Iain Smith said this week's shake-up announcements, which will see RBS and Lloyds shed 900 UK branches between them, did not alleviate concerns about lending conditions for small Scottish businesses.

It is estimated RBS and Lloyds have a combined market share of between 60 and 80 per cent. The issue was flagged up last year by the OFT as one of its chief areas of concern following the takeover of HBOS by Lloyds.

Smith pressed two senior OFT officials giving evidence to the committee's ongoing banking inquiry to further investigate the problem.

He said that, even though Lloyds Banking Group will be forced to sell its TSB-branded branches in Scotland, services for SMEs were unlikely to change.

The Liberal Democrat MSP said: "That doesn't appear to me to really have any significant impact on the SME market, which you (the OFT] raised concerns about after the merger last year. Would you be willing to look again at competition within the SME sector in Scotland?"

Clive Maxwell, senior director of services at the OFT, said the watchdog would consider the committee's concerns. But he added that the number of operators in the market did not necessarily affect the quality of deals on offer.

Alistair Mordaunt, director of mergers at the OFT, pointed out that the Competition Commission had already looked into SME lending in Scotland, England and Wales. It found that RBS and Lloyds were not manipulating their positions as the market leaders in Scotland to make excess profits, he said.

Former Scottish Labour leader Wendy Alexander questioned why little had been done to improve competition in the Scottish market since the OFT raised its initial concerns last year. She pointed out that SME lending had even been omitted from the OFT's work plan on financial services.

She said: "It will puzzle small businesses in Scotland that there is absolutely no work of any kind whatsoever under way."

The Federation of Small Business (FSB) in Scotland warned a few weeks ago that SMEs were struggling to secure fair financing deals because the leading players had a "take it or leave it" attitude.

Yesterday, the FSB expressed concerns that potential buyers of the Lloyds TSB branches would focus primarily on consumer services.