Banks face probe into small business lending

Britain’s major banks are facing another inquiry after regulators highlighted their fears about the market for lending to small and medium-sized firms.

The Office of Fair Trading (OFT) said its initial work identified possible competition concerns in the sector, including suggestions that there is not enough incentive for banks to compete on price, service or quality.

The watchdog will pass on its study to the Competition and Markets Authority (CMA), which from next month will become the UK’s lead competition and consumer body. The CMA will decide in the summer if the criteria for a full-blown inquiry have been met.

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Significant concerns have been raised that banks may be hindering SMEs in accessing finance from alternative providers such as peer-to-peer lenders and new financial technology lending platforms, the OFT said.

Alternative finance providers have complained that there are often significant delays in banks waiving security in respect of existing loan arrangements or agreeing the documentation for them to take a second charge.

OFT chief executive Vivienne Dews said: “SMEs are a vital driver of growth in the UK. They need access to banking services and loans which meet their needs.

“Our work suggests there may be competition concerns in this sector. We will continue our work over the coming weeks and hand this on to the CMA to conclude the analysis, and decide on the next steps.”

As part of its investigation, the CMA will also look at the personal banking market to see whether the introduction of seven-day switching is increasing competition. The watchdog will also examine the impact of plans by Lloyds and Royal Bank of Scotland to sell off parts of their retail banking businesses.