* RBS appoints ex-BoE deputy governor to lead review
* BoE's Bailey says jury out on banks' desire to lend
* BoE reports rise in small business defaults in Q2
* Federation of Small Businesses: firms need better info
By Matt Scuffham
LONDON, July 3 Royal Bank of Scotland (RBS)
has commissioned a review of its lending to small
businesses, responding to concerns of a shortage of finance in a
sector seen as vital to Britain's economic revival.
Britain's government and central bank are concerned that
poor access to finance for smaller firms may thwart a
sustainable recovery from the country's worst slump in decades.
Business lending has fallen despite the government's
flagship Funding for Lending (FLS) scheme, which gives banks
cheap funding to encourage them to offer credit.
Banks say they must balance demand to lend against the need
to avoid the kind of reckless lending which resulted in Britain
having to pump a combined 66 billion pounds ($100 billion) into
RBS and Lloyds during the 2008 financial crisis.
RBS has come under particular political pressure because it
is Britain's biggest small business lender and the government
controls 81 percent of it.
The bank said it had appointed former Bank of England deputy
governor Andrew Large and management consultants Oliver Wyman to
conduct the review. It said the study would focus on what steps
it could take to support small businesses and Britain's economic
recovery while maintaining sound practices.
"Demand for lending remains a challenge, but we want to do
more than just wait for demand to materialise," said Chris
Sullivan, RBS's head of UK corporate banking. "We want to play
our part in securing the recovery."
RBS's plans coincided with the Bank of England saying
Britain's improved economic outlook had boosted demand for
corporate credit in the second quarter. The availability of
corporate credit, however, was expected to stay little changed.
The central bank said this week that lending to smaller
firms dropped by 452 million pounds ($685.71 million) in May and
deputy governor Andrew Bailey told lawmakers the desire of
British banks to offer credit was still in question.
"The answer they give is, they are increasing their capacity
to make lending, and my answer to that is, that's good but I
think the jury is very much out on this. I mean, we have to see
the evidence on this," he said.
However, banks' assertion that they must avoid reckless
lending was underlined by data from the Bank of England on
Wednesday which showed a significant rise in default rates on
small business loans in the second quarter.
The Bank of England had previously reported a 300 million
pound fall in net lending by banks and building societies taking
part in the FLS scheme in the first three months of 2013.
Stephen Hester, ousted as RBS chief executive last month,
said in May the bank had 20 billion pounds of spare cash it was
desperate to lend, but could not find takers because businesses
lacked confidence in the British economy.
Last month, the bank said it had identified thousands of
British companies it could offer 1.7 billion pounds ($2.6
billion) of extra credit to.
The Federation of Small Businesses said the RBS review
should focus on helping small businesses better understand what
information they needed to give when applying for credit. For
example, it should direct businesses seeking credit to its
The British Chambers of Commerce called on other big lenders
to follow RBS's lead.