UK bids to break hold of ‘Big Five’

It will take another five years or more to make real inroads into the dominance of Britain’s five biggest banks, a senior Bank of England official said yesterday.

Two years ago the government and regulators made it easier for new entrants to set up shop in attempt to loosen the chokehold of Lloyds, Barclays, HSBC, Royal Bank of Scotland and Santander UK, which provide about 85% of current accounts in Britain.

However, Martin Stewart, director for banks at the central bank’s supervisory arm, the Prudential Regulation Authority, said that a more diversified market will not emerge until 2020 at the earliest.

“Given both the pipeline of applications in progress and investors expressing an interest in submitting an application, we would expect to see five or six bank licences being granted per annum for the next few years,” Stewart told a mortgage industry conference.

“But it will take many years for them to make significant inroads into the market shares of the established players,” he said.

The new banks have focused on targeted market opportunities that are poorly served by the incumbents, such as invoice finance or small businesses in a specific region. Newcomer Aldermore made a rousing stockmarket debut on Tuesday, but business for new entrants is still tiny compared with the Big Five.

Aldermore’s lending grew by 42% last year to £4.8bn (€6.8bn), almost insignificant when compared with the £216.7bn loaned by Barclays to individual customers and businesses in the first half of last year.

OakNorth is the latest challenger to be granted a licence, appointing a former top regulator, Adair Turner, as its senior independent director. However, despite the flurry of new players, Stewart said further consolidation in the sector, even among the new banks, is likely even if competition and diversification continue to set the agenda.

“If the UK wants a more diversified retail banking market, we need to be prepared to wait until 2020 and beyond,” he added.

Reuters