Banks to Face Probe from Competition Watchdog on SME Lending

SME Lending

The Office of Fair Trading in the UK released an update today, which showcases the review of banking for the SMEs. Experts believe this decision may have some impact on the concurrent effort by the government to sell 33% of its stakes to private franchises.

At the time of the Independent Commission on Banking, competition investigation was proposed. It was in 2011. The market study is currently going on as the OFT has been receiving information and engaging with bank stakeholders. After analysis, the OFT will refer to CMA to take action.

On the surface level, the problem seems to be difficult on the part of small and medium-sized businesses to get loans from alternative sources due to hindrances created by banks.

Vince Cable, Secretary of State for Business said, “SMEs feel they have too few lending options other than the big four banks, which is not healthy for the economy,”

He also said, “The picture of concentrated ownership and excessive profit margins from SME banking described in the 2000 Cruickshank Report remains largely unchanged,”

The OFT observed that personal current account market benefits mostly the big banks. Lloyd, HSBC, Barclays and Royal Bank of Scotland had 75% market share in this sector in 2013. As a result of this, they will now face investigation.

Once OFT sends its analysis to CMA, the CMA will become the lead competition and consumer body in the UK and decide whether any bank meets the criteria for an inquiry.

Sources other than banks to secure loans are peer-to-peer loan providers and web platforms with advanced financial technology and analytics. Such providers complained that banks often intentionally defer loan clearance.

The OFT acknowledged this as Vivienne Dews, the chief executive officer of OFT said, “SMEs are a vital driver of growth in the UK. They need access to banking services and loans which meet their needs”

The banks replied that they are devising strategies so that a small or medium size business could get loan easily. They want the process to rely on referral system such that if a business owner is denied loan from a bank, he will be referred to other ways of getting the loan.

The British Bankers Association representative said, “We want businesses to have as many options as possible when seeking to get finance, which is why individual banks and the BBA have set up programmes to refer customers to other institutions”.