Watchdog to examine SME banking

The Office of Fair Trading (OFT) will examine competition in banking for small and medium-sized enterprises (SMEs) – and trade bodies are looking to put the stranglehold of Lloyds Banking Group and Royal Bank of Scotland (RBS) s on the market north of the Border at the heart of the investigation.

The inquiry is part of the OFT’s wider probe into retail banking, which included a review of personal current accounts that ended in January.

OFT chief executive Clive Maxwell said: “A competitive banking system and access to finance is vital to businesses and to economic growth.

“Our review of SME banking is part of an ongoing planned programme of work in this area to allow the Competition & Markets Authority to decide whether or not to make a market investigation reference by 2015.”

Colin Borland, head of external affairs at the Federational of Small Businesses (FSB) in Scotland, said his organisation would be drawing the OFT’s attention to the situation in Scotland, where Lloyds and RBS control about 75 per cent of the market between them.

“This will be a very valuable piece of work and is long overdue,” Borland told The Scotsman.

“In Scotland, 75 per cent of the banking market is in the hands of two players. I think this is an issue that deserves consideration and we’ll be making that point to the OFT.”

The British Bankers’ Association (BBA) trade body defended its members’ record on lending to small businesses. A spokesman said: “The banking industry is fully supportive of a competitive finance landscape for businesses that drives innovation and will co-operate fully with this market study.

“The UK’s banks are making funds available and are currently offering some of the lowest interest rates in history. Around three quarters of businesses get the finance they are looking for with over £6 billion of new lending going out the door of the major UK banks every quarter, putting millions of pounds back into the engine room of the economy, the SME sector.

“Banks are also encouraging businesses to consider other finance options, working with alternate finance providers such as community development finance institutions, angel investors and the bank-backed Business Growth Fund.”

News of the OFT probe comes as the Payments Council prepares to launch a service next week to make it easier to switch current accounts between banks. It will hold an event at the Scottish Parliament on 27 June to promote the service.

Payments Council chief executive Adrian Kamellard said his body worked with 37 brands across 17 banks and building societies to build the service.