UK banks face competition inquiry

Britain’s biggest high street bank are facing a full-blown competition inquiry into small business lending and current accounts that could see them broken up, reports The Telegraph.

The Competition and Markets Authority (CMA) has recommended the inquiry after a study found current account serviecs and SME lending “do not appear to be functioning in the way we would expect of effective competitive markets”.

Britain’s new competition watchdog said: “Given the key importance of retail banking, to the wider economy. For current accounts in both the personal and the SME sector, customer satisfaction scores for the four largest banks are below or around 60pc, but, despite this, there is relatively little customer shopping around or switching, leaving both the market concentrated and market shares of providers relatively stable over time.

The CMA added: “Larger banks, with relatively lower satisfaction levels, had not significantly lost market share, while banks with higher satisfaction levels have not been able to gain significant market share, which is not what one would normally expect to find in well-functioning, competitive markets.”

The big banks provide 77pc of current accounts and more than 80ps of small business lending.

The regulator can order structural remedies, such as breaking up banks considered too dominant, and behavioural remedies, such as improving information given to customers. The inquiry will report after next May’s General Election.

The inquiry is expected to weigh on shares of the banks on Friday as investors question future profitability.

The CMA’s decision follows Labour leader Ed Miliband’s call for the big banks to be broken up, a policy announcement which was widely dismissed by rival politicians.

On the eve of the CMA announcement, Vince Cable, the Business Secretary, wrote to Ross McEwan, chief executive of RBS, telling him to accelerate a partial break-up of part of its UK business.

RBS is being forced to sell off Williams & Glyn (W&G) as the result of a European Comission diktat on the back of the £45bn of state aid RBS received at the height of the financial crisis.

The W&G business – which is being sold to a consortium of investors including the Church of England Commissioners through an accelerated initial public offering (IPO) – will consist of 316 branches, covering 1.7m customers, and a 5pc share of the UK’s SME market.

In the letter, a copy of which has been seen by The Telegraph, Mr Cable demands “greater clarity” on the “path to divestment” of W&G – made up of 316 renamed RBS branches and a sizeable SME portfolio – which under current plans will not be fully divested until the end of 2017.

Mr Cable, who last month said he was frustrated by the time taken by RBS to extricate the business, which the bank previously tried and failed to sell to rival Santander.

“Business continues to raise concerns with me that the length of the process risks reducing the impact of the full divestment…because it could increase the possibility of gradual erosion of the divested business’s customer base,” he wrote.

The Business Secretary goes on to suggest that even if the initial IPO cannot take place before 2016, RBS should consider rebranding the branches sooner, and publish a “clear timeline” on the actions Mr McEwan plans to take.

The Telegraph reported last month that RBS has previously told Mr Cable that firing the gun on the sale of W&G before the 2016 deadline agreed with the Treasury was highly unlikely, despite his earlier comments.
A spokesman for RBS declined to comment.

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