LONDON British politicians have launched an inquiry into small-business lending after criticism of banks over their treatment of companies and accusations of inadequate lending.
State-backed Royal Bank of Scotland has been slammed for sucking cash out of viable small businesses, while other leading lenders have been accused of not offering sufficient credit to small and medium-sized enterprises (SMEs).
"SMEs report that they are struggling to secure adequate access to finance, from banks and elsewhere. It is vital to a sustainable economic recovery in the UK that this market be restored to working order," said Andrew Tyrie, chairman of the Treasury Committee.
"Like individual customers, SMEs have been badly treated by their banks," Tyrie said.
Tyrie added that regulatory barriers and other impediments to competition need to be removed to allow small companies to take advantage of new sources of finance, saying that increased competition could also drive up standards.
"SMEs are viewed as sophisticated customers by regulators when, in reality, many are not," he said.
The Committee comprising 13 politicians from across the leading parties plans a short inquiry, starting on Tuesday, focusing on access to finance for businesses, scope for opening the sector to more competition and the treatment of SMEs by banks.
The inquiry is likely to look at all of Britain's five biggest banks - Lloyds Banking Group, RBS, Barclays, HSBC and Santander UK - but RBS has come under particular scrutiny because it is 81 percent-owned by UK taxpayers.
An independent report commissioned by the bank in November found that it had failed to support small businesses in the way it should. That was followed by a more scathing report by a government adviser accusing RBS of pushing small businesses into default so that it could charge higher fees and seize control of their assets.
Britain's financial regulator and RBS itself have launched reviews of the accusations. The bank's Chief Executive, Ross McEwan, has said that he does not believe that the bank conducted a "systematic" effort to profit from troubled business customers.
The Treasury Committee's inquiry will start with evidence from Russel Griggs, an independent reviewer of how banks handle appeals by companies, along with Priyen Patel, an adviser to the Federation of Small Businesses, and Matthew Fell from the Confederation of British Industry.
(Reporting by Steve Slater; Editing by Matt Scuffham and David Goodman)