The report by former Bank of England deputy governor Sir Andrew Large found that up to 10% of small and medium enterprises (SMEs) rejected at a pre-application stage may in fact be suitable for financing.
It means that while state-backed RBS performs better than other lenders on dealing with SME loan applications, this is partly due to the fact that it screens out more potential borrowers before the application stage, Sir Andrew found.
The report also made reference to accusations about the bank “hastening the failure of businesses” in some cases that are also the subject of a report by Business Secretary Vince Cable’s adviser Lawrence Tomlinson.
SME financing is critical because it is seen as key to a sustainable economic recovery.
But overall RBS, which is 80%-owned by the taxpayer, converted one in four of all business approaches into lending, slightly lower than the market average.
Sir Andrew’s review included a look at the behaviour of relationship managers and credit officers at the bank - together responsible for making lending decisions.
He found that following the financial crisis, relationship manager bonuses were less directly linked to loan volumes and financial performance.
These changes had “reduced the propensity for relationship managers to submit lending applications that might be rejected through the credit process”.
Sir Andrew added: “In addition, changes in the appraisal process for credit officers mean that approving applications that subsequently turn bad results in greater personal sanction.
“These factors have resulted in risk aversion at an individual level. This has resulted in some lending not being made that is within the risk appetite of RBS.”
The review says a time-consuming and flawed credit process is also to blame for weakness in the number of loans ultimately taken up by SMEs.
Many did not do so despite being approved because the deal offered had different terms and conditions from those they had sought.
Meanwhile, Sir Andrew said there had been information from three separate sources in relation to “extreme allegations” about the mistreatment of RBS business customers.
These were included in letters to the business department as well as 11 out of 550 responses from SMEs to the review, and the case studies compiled by Mr Tomlinson.
The report said: “The accusations mainly stem from a perceived conflict of interest within RBS, such that RBS does not meet expected standards of conduct and may even be profiting by working against the best interests of financially distressed customers.
“These claims focus primarily on RBS’s Global Restructuring Group (GRG).
“They assert that on occasion, although purporting to be acting in the interests of a turnaround, GRG may in fact be acting to retrieve the maximum value for the bank and its shareholders by initiating a recovery or resolution process and thereby actually hastening the failure of businesses.”
Some details of Sir Andrew’s review were published earlier this month.
It makes a series of recommendations for RBS to improve its small business lending, including ensuring that customers in financial distress receive the appropriate treatment, simplifying and speeding up the lending process and improving customer communication.
Chief executive Ross McEwan has pledged to take immediate action to improve SME lending by writing to thousands more firms about the availability of finance, launching a dedicated website on the lending process, promising to make most lending decisions within five days, training its staff and improving the appeals process when applications are turned down.