THE UK faces the risk of further banking scandals, unless action is taken to increase competition in the lending market for small and medium-sized businesses, according to a Government adviser.

Lawrence Tomlinson, the Yorkshire entrepreneur and Government adviser who compiled a dossier of complaints against RBS’s turnaround division, made the comments in response to reports that the Government is going to urge the big banks to increase the supply of SME (small-and-medium-sized business) loans.

The report in the Sunday Telegraph said the move, which is expected on Wednesday, is set to accompany the publication of a survey into the treatment of SMEs by the high street banks.

The survey, commissioned by Chancellor George Osborne, will reveal that smaller companies still feel that they are being shut out by the banks when it comes to lending, according to the newspaper. The survey, undertaken by the British Chambers of Commerce (BCC) and the Federation of Small Businesses (FSB), will rank the different banks based on how well they are meeting the needs of small companies. It is thought Lloyds Banking Group and Santander have fared well in this ranking.

Mr Tomlinson said yesterday: “Clearly not all banks are the same and it appears some come out better than others in this week’s survey. However, without more competition and a flourishing SME lending market, the gates remain open for the scandals of the past to perpetuate.

“We need to sell off the investment arms of the two dominant Government-backed banks, removing incentives for inappropriate products to be pushed down to customers. It’s important we carve out smaller more responsive retail and commercial banks which can meet the needs of their customers. Until then, businesses will always struggle to get finance on commercially acceptable terms.”

Peter Holmes, the Yorkshire regional chairman of the Institute of Directors, said yesterday: “This is difficult to call because in my experience, as recently as last August, there were banks willing to lend to sound businesses with a good history and an effective management team. We had three of the big names fighting to lend us a large sum. Just because a business is an SME doesn’t mean it is safe to carry bank debt. While support for business growth is to be applauded, banks have learnt their lesson, and money is and should only be available to businesses that will be able to repay it. Competition amongst the banks will not mean loans will be available for weak propositions.”

In April, Royal Bank of Scotland said an independent review by law firm Clifford Chance found no evidence that it set out to defraud its business customers. The bank, which is 81 per cent-owned by the Government, commissioned the review after Mr Tomlinson accused it of pushing struggling small firms into its turnaround’ unit, so it could charge higher fees and take control of their assets.

Mr Tomlinson said RBS had engineered businesses into default in order to move them into its Global Restructuring Group, enabling it to generate revenue through higher fees and the purchase of devalued assets by its property division, West Register. In response to the Clifford Chance report, RBS said it would wind down and sell any assets in West Register.

The bank said the report found some cases where customers felt its fees were not clear and a handful of customers had made allegations about the behaviour of bank staff. RBS said it was investigating those cases.

In April, RBS chief executive Ross McEwan said: “I welcome the Clifford Chance findings which show no evidence of the serious and damaging allegation that we had set out to deliberately defraud our business customers.”

Mr McEwan said GRG had successfully turned round the vast majority of businesses which it worked with, while dealing with billions of bad loans built up by reckless lending in the run-up to the 2008 financial crisis.

GRG’s activities are still the subject of a review by Britain’s financial regulator, the Financial Conduct Authority (FCA).

“I look forward to the FCA publishing their findings later this year, as their scope is much more robust, far reaching and, of course, independent,” Mr Tomlinson said recently.

  • SME Banking