Challenger banks to receive unexpected boost from RBS

At long last, the shareholders of RBS (still 73% owned by the State) have received a piece of goodish news that should help raise their spirits. Faced with the prospect of missing the deadline for disposing of 300 of its branches under an EU directive – and yet another fine, or worse – the bank could be let off the hook by a cunning plan master-minded by the Treasury which involves RBS committing to spend £750m to support more competition in the SME marketplace.

As the situation currently stands, this is just a proposal that still has to be signed off in Brussels, but, given that RBS has racked up over £50bn in losses since the bail-out in 2008 and has already spent £1.8bn trying unsuccessfully to divest itself of the branches in question, a mere three quarters of a billion seems a snip.

If the plan is approved, it is proposed that the RBS money will be spent in four ways. First, a fund will be set up, administered by an independent body, that eligible challenger banks can access to increase their business banking capabilities. Second, there are to be dowries for challenger banks to help them encourage SMEs to switch from RBS. Third, RBS will grant business customers of challenger banks access to its branch network for cash and cheque banking. And, finally, a second fund will be created to support investment in technology.

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Although RBS is still facing some hefty fines from the US authorities, the plan, if successful, will remove one of the bank’s nastier legacy issues. This, in turn, could pave the way for the Government to dispose of the shares it holds on behalf of the great British public and RBS could be out of special care and back on track to resume life as a normal bank.

At the same time, the SME sector will have received a bonus. But the question is, are individual businesses of a mind to take advantage of this unexpected generosity? It comes at a time when the Government is desperately looking to unlock the potential of SMEs to boost the economy in support of its recently-announced Industrial Plan.

The latest quarterly report from the Government’s British Business Bank (BBB) talks of supporting SMEs in three key areas: supporting scale-ups; closing regional imbalances; and raising awareness and confidence. This last entry seems of particular significance given that the BBB report also reveals that fewer businesses (37%) are expecting growth this year compared to 2016 (56%) and that the majority of small businesses (71%) would accept a slower rate of growth rather than borrow money. Other statistics show that, of those businesses that do want to borrow money, the vast majority will approach only one lender and, if turned down, will simply look no further and give up. Clearly, the marketing challenge remains enormous.