A SEARCHING probe of Royal Bank of Scotland’s lending to small and medium sized businesses will be kick-started today in an apparent attempt to defuse political controversy over the issue.
The aim of the independent review, to be conducted by City grandee Sir Andrew Large and management consultancy Oliver Wyman, will be to have a “thorough and independent” look at the bank’s lending standards and practices towards SMEs. The business lending of RBS’s NatWest arm will also be scrutinised.
Large, a former deputy governor of the Bank of England, said in a statement: “There is a disconnect between what the bank says it is doing on lending, and what many businesses say they experience on the ground.
“That is why we have been asked to conduct an independent review to establish what is going on, and what steps can be taken. Clearly, the business community needs to have confidence that deserving firms can get the support they need.”
Large, also former chairman of the now-defunct financial regulator, the Securities and Investments Board, and Wyman will also talk to the new City regulators, the Treasury and small business trade groups to make the review “objective and unbiased”.
Some will see the move as RBS succumbing to political pressure. Outgoing chief executive Stephen Hester has been grilled in the past at the Treasury select committee about the bank’s lending to SMEs. while Chancellor George Osborne has stressed he wants the 81 per cent taxpayer-owned group to focus its business on kick-starting a UK recovery.
However, Hester has publicly told politicians that while the money is there to lend, many SMEs in the tough economic climate have preferred to pay down debt.
Chris Sullivan, RBS’s UK corporate banking head, said: “We are the biggest lender to SMEs in the country, and have identified £20 billion in surplus deposits that we want to put to work to support the economy – but we constantly hear that businesses can’t get the finance they need.”
Sullivan said that with the economy now recovering “it is the right time to have a fresh look at lending, to make sure we are making the right judgements, to challenge ourselves to get better and support even more businesses”.
RBS is the biggest lender to smaller businesses in the UK, with a market share of 24 per cent, but accounting for 35 per cent of SME loans and overdrafts balances outstanding.
The group said the review, whose findings will be made public this autumn, will not consider “market demand factors”.
It will test how much RBS and NatWest have been willing to lend to SMEs with conditions that are “reasonable” – defined as being “unconstrained except by legitimate and necessary concerns related to prudence”.
Small business groups reacted positively to today’s development, with the British Chambers of Commerce saying the review was “sensible and welcome”.
It added: “We would hope that other major lenders follow RBS’s lead, and shine a light on their own business lending practices.”
The Forum of Private Business said: “It’s in everyone’s interest that the right lending decisions are made, and this process should help RBS do just that.”
• Andrew Bailey, head of the Prudential Regulation Authority, told MPs yesterday that the organisation’s regulatory predecessor, the Financial Services Authority, “never approved” the Co-operative Bank’s abortive takeover of 632 Lloyds bank branches.
Bailey told the Treasury select committee that the FSA urged the Co-op two years ago to strengthen its capital position – a £1.5bn hole in the mutual’s balance sheet eventually scuppering the Lloyds deal.