Bank lending rules ‘could harm UK small businesses’

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The Commons Treasury committee has expressed concerns over proposed lending rules that could adversely affect small businesses in the UK.

These rules, put forth by the Prudential Regulation Authority (PRA) as part of the Basel 3.1 package, aim to enhance banks’ resilience but may inadvertently raise borrowing costs for small firms.

Specifically, the committee highlighted the PRA’s plan to eliminate the “SME supporting factor,” which allows banks to reduce capital requirements for small business loans. MPs warned that this move could hinder the competitiveness of British SMEs compared to their European and American counterparts.

According to the committee’s report, the removal of the SME supporting factor could increase the cost of lending for small businesses and potentially reduce the availability of finance. This, in turn, may lead to UK banks being out of step with international peers, negatively impacting the UK market’s competitiveness.

Various stakeholders, including NatWest and smaller lenders like Allica and Handelsbanken, have voiced concerns about the proposed changes, emphasizing that it could make lending more expensive and hinder SMEs’ ability to scale up and create jobs.

The British Chambers of Commerce has also raised alarms, warning that EU and US banks could undercut UK banks’ services if the changes proceed.

In response to these concerns, the Treasury committee urged the PRA to ensure that the final implementation of Basel 3.1 standards does not impose stricter capital requirements on SME lending than the current system. They emphasized the importance of maintaining international competitiveness with the EU and the US.

Additionally, the committee’s report addressed other issues affecting the SME finance market, including the de-banking of small businesses, challenges with dispute resolution services, and problems related to personal guarantees.

Dame Harriett Baldwin, chairwoman of the committee, said: “Unfortunately, what we have found over the course of the inquiry is that there are some instances where banks and regulators are making a tough world for small businesses needlessly tougher.”

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