Government boost for banking minnows

NEW ‘challenger’ banks could be given another boost to enable them to take on the High Street lenders.

The Government yesterday unveiled proposals to make it easy for upstarts to both check the credit worthiness of business customers and to provide them with finance.

It comes amid concerns that the biggest banks are continuing to starve cash-strapped firms of vital credit – more than five years after the start of the financial crisis.

Under the proposals, banks will be forced to share credit data on small and medium sized-companies with their smaller rivals via credit reference firms. This would remove one of the many barriers which put challenger banks at a disadvantage to the High Street giants. Without this information, they cannot make an informed decision on who to lend to.

A number of bodies, including the Office of Fair Trading and the Competition Commission, have highlighted how the lack of information about the credit-worthiness of SMEs has limited the number of providers of finance to these firms. This had helped the big four High Street banks – Barclays, Royal Bank of Scotland, Lloyds and HSBC – to control 85pc of SME lending.

Although challenger banks such as Aldermore are gaining some traction, the Government says more needs to be done.

Financial secretary to the Treasury Sajid Javid said: ‘Requiring banks to share data is an important part of creating a more level playing field that will enable more providers to enter the market.’ The consultation period will run until February 1T, 2014. The Government then intends to bring forward legislation in the next session of Parliament.

Earlier this year the City watchdog announced plans to give new applicants for banking licenses more relaxed rules about how much capital they need to have to protect themselves against financial shocks.

The Government and the Bank of England is also refocusing the Funding for Lending Scheme so banks can only borrow cheaply if they lend more to businesses.