Nathalie Thomas: Banking pantomime is no laughing matter for Scotland's small firms

Published on Thursday 3 December 2009 20:11

IT'S pantomime season so it seems only fitting that the banks and the government should whip up another drama.

Ever since Treasury select committee chairman John McFall reduced the banking "masters of the universe" to quivering schoolboys in February, those with a taste for the theatrical have been left hungry for more.

The month of villains in bright tights and pantomime dames has started well with a brouhaha between the Treasury and Royal Bank of Scotland over bonuses. It had all the right ingredients for a great show, with a mass walkout of the RBS board threatened if the Treasury blocked the payment of competitive bonuses.

Sadly, Gordon Brown has brought down the curtains before the play got into full swing, reassuring yesterday that RBS would not be a victim of discrimination. But at Holyrood, the Scottish Parliament's economy, energy and tourism committee is trying its best to keep the banking show rolling.

It may have received little attention compared with the Treasury select committee's hearings earlier this year, but Holyrood's ongoing banking inquiry is gaining pace.

One of the committee's main preoccupations has been Scotland's small business lending market. With 99 per cent of all Scottish firms falling into the SME category, where and at what cost they'll be able to secure finance should be, rightly, at the forefront of committee members' minds.

This week, Gavin Brown, member for the Lothians, had the bit between his teeth. He pressed Archie Kane, who presides over Lloyds Banking Group's Scottish operations, to clarify what percentage of small business customers the super bank is likely to lose when it is forced to sell off its Lloyds TSB branches in Scotland. Kane's answer was concerning.

He warned that Lloyds, which is currently the second-biggest player in the Scottish SME market with a 30 per cent share, will lose somewhere between 10 and 14 per cent of its market share through the divestment, which has been forced by European competition commissioner Neelie Kroes. For those small firms that have long complained of Lloyds and RBS running a "duopoly" in the SME market north of the Border, this admission might be music to their ears. Many small companies complain that the two heavyweights have a "take it, or leave it" attitude as they know firms are unlikely to secure a better deal elsewhere.

But if Lloyds loses a 14 per cent market share, who is going to take up the slack? Over the past year, many of the foreign banks that offered loans and other services to Scottish SMEs have packed up their bags and headed for home. So far, there is very little hope of them coming back.

Speculation surrounding possible buyers for the Lloyds TSB Scottish branches has churned out names such as Virgin Money. But, worryingly for Scotland's army of small firms, few of the lead contenders appear to be interested in small business banking.

Instead, their business models focus on personal accounts, insurance and personal loans. That still leaves the worrying question of who fills the breach.

The Federation of Small Businesses in Scotland is keen for a Post Office Bank to pick up the mantle. However, when the government unveiled its plans for a PO Bank yesterday, mentions of small business banking were thin on the ground.

The FSB is also hoping some US banks, which survived the recession relatively unscathed, might set up on Scotland's shores. As revealed by our sister paper, Scotland on Sunday, the FSB is hopeful of staging talks with the likes of Wells Fargo and General Electric, which are rumoured to be interested in entering the SME market.

By the FSB's own admission, a lot is riding on who the UK government strikes a deal with over the Scottish Lloyds TSB branches. The pressure to go with the highest bidder will be intense, but what if that bidder doesn't offer small business banking?

Of course, the government can't force a company to lend to SMEs, if it does not want to. But surely the range of services a potential buyer offers has to considered alongside price when the bids are scrutinised? Otherwise the "take it, or leave it" attitude which currently dominates the SME market north of the border only stands to get worse.

Small firms are the life blood of the Scottish economy. We cannot afford to let their financial artery be blocked off.