City minister: Debanking trend is a ‘great business opportunity’ for newer lenders

City minister Bim Afolami has told MPs that big banks closing high numbers of small firms’ accounts offers “great business opportunities” for newer lenders with different risk appetites.

Data published by the Treasury Committee last night showed major banks closed around 142,000 small and medium-sized (SME) business accounts last year.

Conservative MP and committee chair Harriet Baldwin questioned why some banks do not “systematically” record how risk appetite factors into decisions on closing accounts.

Speaking today to the committee on Wednesday as part of its inquiry into SME finance, Afolami acknowledged that the 142,000 figure was “a lot”, with SMEs handling lots of cash facing a “double whammy” of account closures due to money laundering concerns and branch closures.

Conservative MP and committee member John Barron noted a feeling among SMEs “that banks tend to, if anything, be anti-business”, citing evidence that two-thirds believed banks were less willing to lend to them today.

Afolami responded: “I think it’s really important that banks are always straight with people about what’s going on… and it definitely frustrates me when I hear these stories.”

He said banks mostly pinned account closures on a perceived risk of financial crime risk and lack of information sharing, with “some in big banks feeling that banking certain sectors may be risky from a money laundering perspective”.

Afolami said the Treasury should ensure “conditions where alternatives are provided” for debanked businesses, adding: “What I’m hoping is that particularly other new institutions seek to take the great business opportunity.”

“There are great business opportunities in that 140,000,” he said, citing HSBC’s acquisition of Silicon Valley Bank UK and providing banking services to its customers after it collapsed last spring.

“I think the best way to make sure people are banked appropriately and properly is to make sure that the regulations… are proportionate, simpler and easier to do, and that has not been the case for too long,” Afolami added.

“Should we get to a position of saying to every bank ‘You must take on any business that satisfies A, B or C basic requirements’? I don’t think that’s what government should do.”

The Treasury has committed to increasing banks’ minimum notice period for terminations to 90 days and requiring them to give clear reasons for account closures.