Bank to review small firms' lending

RBSTaxpayer-backed Royal Bank of Scotland is launching a review of its small business lending after uncovering £20 billion in untapped cash that could be used to support loan-starved companies.

The group, which is 81% owned by the Government, has hired former Bank of England deputy governor Sir Andrew Large and management consultancy Oliver Wyman to conduct an independent examination of the lending practices and standards used by RBS and NatWest for small and medium sized businesses (SMEs).

%VIRTUAL-SkimlinksPromo%It said it had discovered it has £20 billion more in small business deposits than being loaned out to SMEs and wants to put this surplus to use by supporting firms and playing its part in "securing the recovery".

The review comes amid mounting pressure on the banking giant to increase business lending and follows the launch of a sector-wide probe by the Office of Fair Trading into SME lending following calls for an investigation by the Parliamentary Commission on Banking Standards.
In its recent final report, the commission raised concerns that a lack of competition was leaving firms with little or no choice in accessing finance.

Following RBS boss Stephen Hester's shock departure announcement, Chancellor George Osborne also made it clear the bank's new chief executive would be expected to increase lending to Britain's small businesses.

He said at the time: "Now is the time to move on from the rescue phase to focus on RBS being a UK bank that provides greater support to the British economy, helping businesses and job creation here."

The bank's net lending fell by £1.6 billion in the first quarter of 2013, despite tapping the State's Funding for Lending Scheme for £750 million worth of cheap finance.

Sir Andrew said: "There is a disconnect between what the bank says it is doing on lending, and what many businesses say they experience on the ground. That is why we have been asked to conduct an independent review to establish what is going on, and what steps can be taken."

Business Secretary Vince Cable added: "As the biggest lender in the country, RBS is absolutely crucial to solving small businesses' access to finance difficulties so this review is very welcome. There are plenty of good businesses out there desperate to expand and take on more staff, but they constantly tell me they're being starved of credit. The business bank programme is encouraging alternative lending channels and more competition in the banking sector but the high street banks still have a huge part to play."
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