An influential Holyrood committee has called on the Scottish and UK governments to break RBS and Bank of Scotland’s dominance in providing lending to SME businesses.
A probe by the Scottish Parliament Economy Committee found that greater competition was needed in the lending arena in order to unlock the potential of thousands of small and medium-sized businesses north of the border.
Around 70% of SME lending came from the two banks in 2012 but the committee found there was a dearth of other funding avenues available for companies looking to grow their operations.
The committee said it welcomed assurances from RBS and BoS that they were actively seeking new customers and lending was increasing, but said other funding options required to be explored.
“It is not enough to simply see more of the same type of lending,” the committee said in their, report published yesterday.
“More of the same is not greater competition.
“We encourage the Scottish and UK Government and the regulators to take all opportunities of breaking up the duopoly of lending with the establishment of new sources of credit, particularly those with a different range of products than the current providers.”
Among those who gave evidence to the committee was Aberdeenshire brewer Brewdog, which has funded much of its expansion in recent years through crowdfunding investment online.
The committee also heard from one of the country’s major business angel organisations, LINC Scotland, which targets investments at high-growth- potential firms that require cash to build up their operations.
It also looked at the potential for Islamic finance a source of funding which focuses on ethical investments and prohibits the charging and receiving of interest in lending although there are currently no Scottish domiciled Islamic banks.
Committee convener Murdo Fraser said the lending picture was improving, but criticised Scotland’s enterprise agencies and Business Gateway for failing to open the eyes of companies to alternative sources of funding.
The economy committee report was published as it was revealed the UK’s major banks were facing another inquiry after regulators highlighted their fears about the market for lending to small and medium-sized firms.
The Office of Fair Trading said its initial work had identified possible competition concerns in the sector, including suggestions there is not enough incentive for banks to compete on price, service or quality.
The watchdog is passing on its findings to the Competition and Markets Authority, the UK’s lead competition and consumer body from next month, which will decide in the summer if a full-blown inquiry should be held.