Treasury Select Committee release report entitled ‘Conduct and Competition in SME Lending’.

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Posted in:Banking and Finance, Corporate and Commercial|March 13, 2015 | Join the mailing list


On Tuesday night the Treasury Select Committee, who have been investigating business banking practices, the FCA review and role as a regulator and the big four banks, released a further report investigating SME lending practices and in particular focussing
on ‘Conduct and Competition in SME Lending’. Berg have submitted significant supporting evidence and case examples from the hundreds of national clients we currently support and this has been instrumental in raising the issues and pushing the call for independent
review.  

The Treasury Select Committee (TSC) has taken on the evidence provided by Berg and other experts to analyse the conduct and competition in SME lending (lending by banks to small and medium businesses).

In addition to banking practices, the Treasury Select Committee sees MPs brought together to examine the conduct of various independent public bodies and regulators including the Financial Conduct Authority (FCA).

As this latest TSC report calls for an independent review into the actions of the banks implicated in interest rate hedging product mis-selling and effectiveness of the FCA review, Berg’s managing partner, Alison Loveday, states that ‘Such independent review
is also necessary to start to repair some of the damage that has been caused to the regulators reputation in this space – the FCA.’

The
telegraph this week highlights the monopoly that the four major UK banks
(HSBC, RBS, Barclays and Lloyds) have over the UK market; the control they hold due to lack of competition driving the price of lending down. Even with new entrants to the UK market
such as Metro bank, the four largest banks have accounted for at least 85 per cent of SMEs’ main banking relationships for the past 14 years.

This is worrying situation for the SME customer as the lack of competition means that challenges to obtain lending, or at least lending at an affordable rate, yet the customers can be forced to remain with them due to lack of alternative choice.

SME lending is crucial as SME’s actually account for approximately 50% of the UK overall economy. It is the money lent to them by the banks that allows them to grow and accrue this wealth.
As the Telegraph article states:
The report focuses on lending to small businesses, which has remained worryingly low despite the UK economy’s emergence from recession following the financial crisis.

The latest figures from the Bank of England’s Funding for Lending Scheme show that lending to small businesses by banks in Britain fell by £800m in the fourth quarter of 2014. That followed falls in the previous three quarters and took the total drop last year
to just under £2bn.”
Without truly offering any concrete strategies, the report has suggested breaking up the structure of the banks so that they are split into various sectors. This will mean that the banks’ accounts in relation to lending to SME’s will be not be reflected in
their overall balance sheet. The hope is that this will encourage the banks to lend.

The report also appears to have suggested that “price comparison websites that are "prevalent" in retail banking could be rolled out to aid small businesses who are looking for loans and other financial services”.

MP’s have also suggested that breaking up Britain’s Big Four banks could stop the public getting a “poor deal”.

Download the
full report now.

If there are any issues in this update or more generally that you would like to discuss, please contact
Alison Loveday
or one of our Banking and Financial Regulatory team on 0161 833 9211.

(The information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Berg or any of its partners or employees. Professional legal advice
should be obtained before taking, or refraining from taking, any action as a result of this article.)

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