RBS to provide fund for challenger banks, costing £750m

Royal Bank of Scotland will be forced to supply funding to 'challenger' banks and allow access to its branches to help increase competition for SME business banking as part of a new deal by the Treasury with European regulators that means the bank will not have to sell off its 300-branch Williams & Glyn business.

As RBS failed to agree a deal to sell the branches by the end of 2017, which the European Union demanded as part of the bank's £46bn state bailout in 2008, the government rushed to obtain a new agreement to allow RBS to meet its remaining State Aid obligations.

On Monday RBS announced through the regulatory news service the same message it had released on Friday night, announced that it has taken a new £750m provision within its 2016 results as a consequence of the new proposal.

As part of the Treasury's proposed alternative plan, RBS will create a fund, administered by an independent body, to be accessed by eligible challenger banks to increase their business banking capabilities.

RBS, which this coming Friday is forecast to rack up ninth consecutive year of annual losses, will also deliver funding for eligible challenger banks to help them incentivise SMEs to switch their accounts fromRBS paid in the form of 'dowries' to eligible challenger banks.

To support these measures, RBS will make its branch network open to business customers of eligible challenger banks for cash and cheque handling.

Finally, the 73%-state owned bank will also set up an independent fund to invest in fintech "to support the business banking of the future".

EC competition commissioner Margrethe Vestager will ask commissioners to look at the plans "in the coming weeks".

RBS chief executive Ross McEwan said: “Today’s proposal would provide a path to increased competition in the SME market place. If agreed it would deliver an outcome on our EC State Aid divestment obligations more quickly and with more certainty than undertaking a difficult and complex sale and would provide much needed certainty for customers and staff.”

Analysts at UBS said the move looked positive for shareholders, reducing uncertainty and raising the prospect of dividend payments again.