RBS funds set to fuel more competitive SME lending market

Comment Martin Flanagan

The would-be challenger banks have clearly decided that Royal Bank of Scotland’s donated business banking fund – courtesy of the European Commission – is too good an opportunity to miss as a way into the business lending market.

RBS was forced by the EC to set up the near-£800 million challenger fund as a quid pro quo for being allowed to keep 300 branches of its Williams & Glyn subsidiary, the Scottish bank having originally been ordered by Brussels to sell the branches in return for its taxpayer bailout in the financial crash.

Virgin Money, Starling and Aldermore had already expressed an interest in piggybacking on the challenger fund. And now Nationwide, the UK’S largest building society, has thrown its hat into the ring as well.

Nationwide is most associated with mortgages and savings products. But chief executive Joe Garner says he knows there is great demand for the society to launch a business current account as about 50,000 members a year ask it if it can help. Nationwide also gets confidence from its shake-up of the personal current account market, where it is winning more switchers than the big five banks combined (the latter also dominating lending to smaller firms).

The society also fared better in the court of public opinion than many of the big banks with regards to the financial crisis. Its safe and conservative banking offer was relatively untouched by many of the wider scandals that have so eroded trust in the sector.

That cannot but help Nationwide as it aims to use some of RBS’S cash to try along with the other challenger banks to break the current stranglehold on small business lending.

In that sense, the RBS fund is manna from heaven. As Garner says, and which his challenger lender peers probably agree wholeheartedly with, at the very least the fund probably allows them to bring forward any moves in providing banking for smaller firms by years. AS much of the high street has provided testimony, in recent challenging times for retailers it is the big-ticket merchandise that shoppers get cold feet about. And they don’t come much more big-ticket than sofas, which is why the sharp drop in profits at DFS has few jaws dropping.