Raising Finance

Challenger bank bosses meet with Treasury to open up business lending

3 min read

16 December 2015

Former editor

A series of quarterly meetings with the Treasury’s director of financial services have begun, with the Funding for Lending scheme, capital requirements and banking surcharges on the agenda.

By sitting down around the table with Charles Roxburgh, it is hoped that challenger banks will be able to secure more favourable legislation to increase the amount of lending to small and growing businesses.

The ten challenger bank bosses in attendance, from the likes of Aldermore and OneSavings Bank, will call for an indefinite extension to the government’s Funding for Lending scheme, which currently lets banks borrow funds from the Bank of England at a cheaper rate so that savings can be passed on in the form of lower-priced business loans.

Challenger banks want a continuation of these cheap funds as each look to ramp up the amount of small business lending possible.

The meetings will also focus on chancellor George Osborne’s new industry-wide bank levy. Back in July, Osborne unveiled a new eight per cent surcharge on banks with a profit of over £25m per year and reduction of the existing bank levy. Many saw this as a way of taxing smaller more disruptive lenders and reducing the impact on bigger high street banks.

Sources close to the meetings also told Real Business that capital requirements proposed by the Basel Committee will also be on the agenda. Under the status quo, small banks are held to task to a greater extent than big lenders, as each have to hold more capital against loans. This makes lending more expensive and is said to reduce challenger bank’s ability to compete.

Our source said challenger banks want capital requirements to be reduced so that each are able to compete more effectively.

Read more about challenger banks:

From Metro Bank to Mondo: A look at the prospects of Britain's challengers

Rishi Khosla, CEO of challenger OakNorth Bank, commented: “Higher capital requirements for smaller banks are stifling competition and reducing lending to crucial parts of the economy like small and mid-sized growth companies.

“The government also replaced its levy on large systemically important banks with a new tax on all banks, including small lenders that aren’t systemically important. This doesn’t reflect government rhetoric, or the PRA’s secondary objective, on encouraging banking competition, and makes it harder for smaller banks to challenge the incumbents and offer wider choice and better deals for customers.”

Khosla believes it’s positive for banking competition and the financing of enterprise that the Funding for Lending Scheme has been extended, but thinks the scheme still “heavily favours” large banks rather than making significant progress towards a “more competitive and diverse banking industry” or actively enabling and supporting higher business lending.

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