RBS Orders Lending Review Over Untapped £20bn

Royal Bank of Scotland (RBS) is reviewing its small business lending practices and standards after uncovering £20bn in untapped cash.

The excess money, RBS said, was a result of having £20bn more in small business deposits than being loaned out to such firms.

The group - which is 81% owned by the taxpayer - said it wanted to put this surplus to use by supporting small and medium-sized companies and playing its part in "securing the recovery".

The investigation - to be led by former Bank of England deputy governor Sir Andrew Large and management consultancy Oliver Wyman - will take in both RBS and Natwest and follows widespread criticism that the lenders are not doing enough to support economic recovery.

The banking sector is subject to a separate probe by the Office of Fair Trading into small business lending.

It was demanded by the Parliamentary Commission on Banking Standards which found that a lack of competition was leaving firms with little or no choice in accessing finance.

The bank's net lending fell by £1.6bn in the first quarter of 2013, despite tapping the State's Funding for Lending Scheme (FLS) for £750m worth of cheap finance.

Sir Andrew said: "There is a disconnect between what the bank says it is doing on lending, and what many businesses say they experience on the ground.

"That is why we have been asked to conduct an independent review to establish what is going on, and what steps can be taken."

Banks have been arguing that small business lending levels have continued to shrink due to low demand, but it is thought that firms are struggling to secure reasonable terms and cheaper rates in spite of the boost from the FLS.

Chris Sullivan, head of UK corporate banking at RBS, said: "Demand for lending remains a challenge, but we want to do more than just wait for demand to materialise.

A dedicated website will be set up for the duration of the RBS inquiry through which small business customers can provide their perspectives and experiences on the group's lending.

The review's recommendations are due to be published in the autumn.

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