The Royal Bank of Scotland has hired a City law firm to investigate claims it treated its small business customers to unscrupulous behaviour.
The beleaguered bank was hit yesterday by the publication of two reports criticising its lending practices and its treatment of small firms.
Businessman Lawrence Tomlinson, the “entrepreneur in residence” at the Department for Business, Innovation and Skills, published a report claiming RBS had deliberately forced companies into default to seize their properties.
Mr Tomlinson, who has been compiling the report independently for the past six months, concentrates the allegations on the turnaround division at RBS – its Global Restructuring Group (GRG).
The division handles loans classed as being risky and is understood to have the power to scrap loan deals, impose inflated interest rates and charge hefty penalties.
The bank’s chief executive, Ross McEwan, published a letter sent to Sir Andrew Large, the former Bank of England deputy governor who led the second review which released its details over the weekend.
The RBS chief did not make direct reference to the Tomlinson report, but acknowledged that some customers in distress described in Sir Andrew’s review said they were “angry about the treatment they received”.
He wrote: “To ensure our customers can have full confidence in our commitment to them, I have asked the law firm Clifford Chance to conduct an inquiry into this matter, reporting back to me in the new year.”
In the letter, Mr McEwan also pledged RBS would write to thousands more businesses setting out how much more the bank was willing to lend them. It had already offered £4billion in this way, and this would go up to £10billion.
He said the bank was working to enable all but the most complex lending decisions to be taken within five days of all necessary information being received – a process that can currently take months. Mr McEwan admitted RBS “over-corrected for the reckless lending practices that broke this bank five years ago”.
“We can never return to those days again and your report recognises the steps we have taken to re-balance and stabilise the bank.”
According to the review by former Bank of England Deputy Governor Andrew Large, only 10% of the companies that go into the unit end up entering insolvency proceedings.
But the chairman of the Treasury Committee, Andrew Tyrie MP, added further pressure on the bank.
In a statement, he said the two reports “make clear that there is a fundamental cultural problem with RBS’ lending to and treatment of SMEs”.
He added: “This is unwelcome but not wholly surprising. It confirms what my Parliamentary colleagues and I have been hearing for a number of years and which was, at various times, vigorously rebutted by RBS.
“RBS’ SME lending has serious problems. Any remedy must be real enough to force big cultural change and to convince would-be SME borrowers. It remains to be seen whether the planned internal re-organisation will suffice.”