Local managers at Bank of Scotland are to be given more power over lending decisions as part of a pledge by the bank to boost the amount of funds available to small firms (SMEs) by £1 billion this year.
Today’s lending target, which was accompanied by a goal to help 100,000 start-ups get off the ground, comes a week after the UK’s competition watchdog said it was worried that SMEs may be getting a raw deal from their banks.
The Office of Fair Trading said there were concerns that lenders may not be competing on price and service, and has passed its study to the Competition and Markets Authority (CMA), which next month becomes the new competition regulator. The CMA will decide in the summer if the criteria for a full-blown inquiry into the small business banking sector have been met.
Alasdair Gardner, managing director of commercial banking at Bank of Scotland, said that, under the firm’s new “SME charter”, most senior managers will now be able to approve renewed loans of up to £1m without having to ask head office for approval – double the previous limit of £500,000.
“We are committing to grow our total lending by £1bn in 2014, at competitive margins, building on the growth we have achieved over the past three years,” he said.
“We are now seeing the recovery gathering pace and there are more reasons for SMEs to be optimistic and to start investing for growth. Our goal is to help businesses target their various growth opportunities both this year and beyond.”
Rival Royal Bank of Scotland has admitted that SME lending practices need to improve following a damning report by former Bank of England deputy governor Sir Andrew Large, who found that 10 per cent of small businesses seeking loans were rejected at the pre-application stage. BoS and RBS together control about 70 per cent of the SME lending market in Scotland, and last week a report from Holyrood’s economy committee said their dominance should be broken by establishing new sources of credit for small and medium-sized firms.
According to the latest progress report on the Bank of England’s initiative to boost the flow of credit to businesses, BoS parent company Lloyds Banking Group grew its net lending by almost £4.2bn during the final three months of 2013.
However, the RBS group – which includes NatWest and Ulster Bank – saw the largest contraction among those banks participating in the Funding for Lending Scheme, with net lending shrinking by £2.3bn in the fourth quarter.
RBS is to stop offering “teaser rates” on its credit cards from today as part of chief executive Ross McEwan’s efforts to win back the public’s trust.
Moray McDonald, interim head of products and marketing at the state-backed lender, said short-term deals such as zero per cent interest on balance transfers were “trapping people in debts they cannot afford”.
He added: “We’re hunting through everything we do to make sure we are doing the right thing for our customers. The credit card industry is dominated by teaser rates … it’s not good for our customers and it will play no future part in this bank.”
RBS, which sparked anger by announcing £576m of bonuses for its executives last month despite an £8.2bn loss, is also rolling out more business bankers on the high street and cutting the number of products it sells.