Bank lending rules ‘could hurt UK small businesses’

The Commons Treasury committee has raised concerns about proposed credit rules that could have a negative impact on small businesses in Britain.

These rules, drawn up by the Prudential Regulation Authority (PRA) as part of the Basel 3.1 package, are intended to increase bank resilience but could inadvertently increase the cost of financing for small businesses.

In particular, the committee highlighted the PRA’s plan to eliminate the ‘SME enabler’, which would allow banks to reduce capital requirements for small business loans. MPs warned that the move could hamper the competitiveness of British SMEs compared to their European and American counterparts.

According to the committee’s report, removing the SME enabler could increase the cost of lending to small businesses and potentially reduce the availability of financing. This in turn could lead to UK banks falling out of step with their international peers, which could have a negative impact on the competitiveness of the UK market.

Several stakeholders, including NatWest and smaller lenders such as Allica and Handelsbanken, have raised concerns about the proposed changes, highlighting that this could make lending more expensive and hinder SMEs’ ability to scale up and create jobs .

The British Chambers of Commerce have also raised the alarm, warning that EU and US banks could undermine the services of British banks if the changes go ahead.

In response to these concerns, the Ministry of Finance Committee has urged the PRA to ensure that the final implementation of the Basel 3.1 standards does not impose stricter capital requirements for SME loans than the current system. They emphasized the importance of maintaining international competitiveness with the EU and the US.

In addition, the committee’s report addressed other issues affecting the SME financing market, including the debanking of small businesses, issues with dispute resolution services and issues related to personal guarantees.

Dame Harriett Baldwin, chair of the committee, said: “Unfortunately, in the course of the investigation, we have discovered that there are some cases where banks and regulators are making the tough world unnecessarily harder for small businesses.”