MSPs call for alternative to banks’ SME lending

MSP Murdo Fraser, convener of the Scottish Parliament's economy, energy and tourism committee. Picture: PA
MSP Murdo Fraser, convener of the Scottish Parliament's economy, energy and tourism committee. Picture: PA
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The dominance of two banks north of the Border – Royal Bank of Scotland and Bank of Scotland – should be broken by establishing new sources of credit for small and medium sized enterprises (SMEs), according to a report by Holyrood’s economy committee.

Publishing the findings of a short inquiry on access to finance for SMEs, the committee today argues that to create genuine choice in the market, a “different range of products” from new providers is needed.

MSP Murdo Fraser, convener of the Scottish Parliament’s economy, energy and tourism committee, said: “The problems of bank lending following the recession are well-rehearsed.

“Whilst the picture has improved slightly, it remains one of the biggest issues facing small businesses.”

He acknowledged that RBS and Bank of Scotland have given assurances that they are “open for business”, but said Scottish businesses needed “greater competition and not more of the same” to unlock their potential.

The two banks together accounted for some 70 per cent of business lending in Scotland in 2012, according to the committee.

RBS was also encouraged to implement the findings of the independent lending review. MSPs called on the publicly-owned institution to demonstrate that it truly has adopted a process of full devolution of lending decisions to localised branches and relationship managers.

The inquiry also considered alternative sources of funding and concluded that Scotland’s enterprise agencies and Business Gateway need to have a far better knowledge of alternative finance models so they can better advise businesses on alternatives to traditional bank lending.

The economy committee’s findings come a day after another inquiry into SME lending was brought to bear on the UK’s banking sector.

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

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

John Longworth, director general of the British Chambers of Commerce, welcomed the 

He said: “Without greater competition in Britain’s banking sector, far too many promising businesses will struggle to get the finance they need to grow.

“The announcement of a further investigation by the CMA is a welcome development – but it must deliver results.”