RBS to lend an extra £3bn to SMEs

RBS will boost small business lending by £3bn - some unusually positive PR for the beleaguered bank...

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Last Updated: 31 Aug 2010

Good news for Britain's SME community: RBS, the stricken bank now 68%-owned by the state, has promised to make an extra £3bn in loans available to small and medium-sized business customers. The money will be divided up to make sure all the regions get their fair share, with decisions to be taken at local level – which should avoid any accusations of politicised lending. All in all, a rare good news story for RBS – although it still managed to shoot itself in the foot on the very same day...

RBS, in tandem with its subsidiary NatWest, said that it would allocate an extra £250m to each of the 12 Regional Development Agency areas. The money, which will be distributed at local level by people who 'understand the local dynamic', apparently, will allow businesses to raise cash against existing assets and take out 'flexible business loans' – possibly allowing for repayment holidays if they run into cashflow difficulties. What's more, the bank is also promising to offer cheaper loans from the £250m pot it's just secured from the European Investment Bank.

Predictably, this RBS move has prompted calls – not least from Business Secretary Lord Mandelson – for the other UK banks to follow suit. And now the Government has relaxed its ridiculous demand that they boost lending and boost their capital cushion at the same time (which genius dreamed that one up?), this is by no means impossible. But to be fair, they're still in a difficult situation: as NatWest chairman Peter Ibbetsen points out, most business propositions are inherently a lot more risky than they were a year ago, given the current climate – so even if the bank's risk parameters stay exactly the same, overall lending is bound to go down.

Now you might argue that since RBS is now nearly 70% state-owned, and facing a possible £28bn loss, it's got more incentive than most to play ball with the Government's wishes. And you'd be right. Still, the important thing is that the money is now there for SMEs – while it could even prove to be a real opportunity for RBS to snap up some great new customers (not to mention get a rare PR coup) at a time when many SMEs are getting short shrift from their banks. So a positive story all round.

However, this being RBS, it wasn't all good news. On the very same day, a report in the Times suggested it was planning to pay some of its investment bankers a six-figure bonus - an extraordinary decision if true, and one which prompted a stern warning from Mandy at the launch event. It feels like one step forward and two steps back for RBS at the minute...

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