* Ministers working on plan for state-backed business bank
* New bank would provide finance for smaller firms
* Lender could operate through new banks in UK market
By Tim Castle
LONDON, Sept 11 Britain is considering the use
of new entrants in its banking market to operate a state-backed
business bank that would offer finance to companies too small to
raise money on equity or capital markets, Business Secretary
Vince Cable said on Tuesday.
Ministers say the expansion of smaller firms could help
revive a struggling economy, but such companies have found it
difficult to obtain loans from Britain's largest banks while
they rebuild their balance sheets after the financial crisis.
One-third of smaller companies that applied for loans over
the past 12 months were refused, showing the issues they face
raising finance, Cable said in advance excerpts of a speech
released by his office.
Cable has long been keen to create a state-backed
development bank similar to Germany's KfW to support British
manufacturers but has to tread carefully to avoid running afoul
of European Union rules that limit state aid.
Indicating that the creation of such a bank was in its
infancy, Cable said ministers were still establishing the "scale
and modus operandi of such a body."
However, he suggested that the bank could be run through a
new generation of so-called "challenger" banks, which the
government has been encouraging to expand in Britain as a way of
increasing competition among lenders.
"In the UK such a bank could operate through alternative
providers such as the new challenger banks like Handelsbanken,
The Co-Op and Aldermore and non-bank lenders boosting their
lending capacity, as well as corralling existing provision such
as co-investment and guarantees to support business expansion,"
Sweden's Handelsbanken entered the British market
in 1982 and now has over 100 branches, while the Co-operative
Bank is buying more than 600 branches from the Lloyds Banking
Aldermore, established in 2009, operates without branches to
offer saving and lending products to small businesses and
Britain's largest banks are Barclays, Lloyds, Royal
Bank of Scotland, HSBC and Santander.
Cable said the new institution's success would be measured
not by its size but by how far it "shakes up the market in
business finance and helps ease constraints for high-growth
"It's essential we increase diversity in the supply of
finance and institutions which provide a coherent relationship
banking service to viable growing businesses," he said.
Finance minister George Osborne said earlier this month that
his Treasury department was working on a government sponsored
business bank that would bring together the "alphabet soup" of
existing state-backed finance schemes for smaller firms.