UK bankers are being incentivised to hit small and medium-sized enterprises (SMEs) looking for business loans with excessive fees, according to new research into the behaviour of lenders towards firms by The Institute for Turnaround.
The organisation claims to have scooped fresh evidence of questionable practices within UK banks, having analysed more than 250 cases regarding SMEs transferred to banks’ restructuring teams.
Christine Elliott, chief executive of The Institute for Turnaround, claims some bankers’ bonuses are being calculated on the basis of excessive fees that companies in business support are expected to pay if they are judged to have experienced financial strife.
“If it is a policy objective to return under-performing businesses to viability in an open, fair and timely manner, then banks’ incentives are misaligned to achieve this aim and should be refocused,” she said.
However, a spokeswoman for state-owned RBS has said it is not the case that its staff have been incentivised by fees, adding that bonuses are discretionary and based on a wide range of objectives set for staff, notably the successful turnaround of a business.
“Objectives have not been set for fees generation or for the number of companies put into insolvency,” she said.
“Serious allegations have been made about the way some customers in financial distress have been treated; to date there has been no evidence to substantiate these claims.”
The research comes at a time when lending to SMEs is also being scrutinised by the Office of Fair Trading (OFT) amid fears they are regularly failing to receive the best possible lending rates from their banks.
The OFT is concerned that business loans are still largely coming from the major banks with SMEs finding it difficult to switch lenders.
Vivienne Dews, chief executive of the OFT, said: “Our work suggests there may be competition concerns in this sector.
“We will continue our work over the coming weeks and hand this on to the Competition and Markets Authority (CMA) to conclude the analysis, and decide on the next steps.”
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