Posted on 04.11.2013, by Rob Warlow

Back in July in this blog we reported that RBS decided to request an independent review of its lending practices with the objective being to enable RBS to enhance its support for SMEs while maintaining safe and sound lending practices. With the review having been carried out the findings reveal that RBS and its subsidiary Nat West has much to do in overhauling its lending processes.

The investigation, headed by former Bank of England Deputy Governor Andrew Large concluded that RBS has not supported the SME sector in a way that meets its own targets or the expectations of its customers. It says that while RBS has started to address a number of the issues raised, further progress is needed.

The report identified a number of reasons for RBS failing to hit its lending targets, including:

RBS’s SME lending targets were at odds with its tougher credit standards, and the limits imposed on lending to certain sectors, for example lending to commercial real estate
Internal restructuring had led to lack of clarity as to which part of the bank was responsible for SME lending
There is a ‘risk adverse’ culture amongst its Managers and Credit Officers
The bank’s lending process is time consuming and loan applications take longer than at other banks
Credit skills of customer-facing staff, although improving, are not up to standard

Having an independent committee pull apart your business and highlighting areas of weakness is a tough message to take but RBS CEO Ross McEwan has accepted the findings and recommendations and has committed to take action. Looking at the findings I suspect that other High Street banks are guilty of many of these sins.

McEwan has committed RBS to the following key actions amongst others:

The bank will write to thousands more SMEs setting out clearly how much it is willing to lend to their business. It has already offered £4 billion of lending opportunities following a similar exercise earlier this year;
A dedicated website will be developed to show clearly what information RBS use to make a lending decision and set out simple, clear steps in its lending process;
The bank will begin work to enable bankers to make all but the most complex lending decisions in just five days of receipt of all necessary information;
RBS will ensure two thirds of its lending decisions are made locally and by sector specialists;
RBS will continue to invest in building the capability of its people with at least 90% of Relationship Managers and Credit Managers professionally qualified;
RBS will start a programme to make all customers whose loan applications are declined aware of the appeals process, and will continue to work with the Independent Appeals Chair to improve the support it provides to customers going though this process; and,
The bank will commit to pointing businesses to alternative sources of finance where it cannot support a loan application.

This is a big undertaking and RBS will on an annual basis publicly report on progress against these commitments. It will be interesting to see how they fare in addressing these issues given the mammoth task ahead of them.