RBS set to split small firms in loans drive

ROYAL Bank of Scotland is considering telling "non-core" small business customers that they will get no more funds unless they re-price existing deals.

An internal memo sent to senior RBS staff has detailed how the company's small business clients will be split into two camps.

Those in the non-core division will only be provided with new lending "once the existing debt has been restructured or repriced". The non-core customers are expected to include those on the most competitive loan deals, which RBS offered at two per cent above the base rate, as the bank concedes that the loans are "not profitable".

Among those impacted are likely to be companies which have taken out loans on property, the memo said. It could result in more development being mothballed.

It effectively means that existing customers on such deals will not be allowed to get more funds from RBS unless they agree to pay more for their existing loan.

It is part of new chief executive's Stephen Hester's strategic review, which attempts to rid the bank of its bad debt and return it to standalone strength.

However, the process of deciding how to categorise which customers are categorised remains at an early stage.

In the memo, RBS said: "There is no need to advise customers of these changes at the moment."

The memo also emphasises that all customers must be treated according to the Financial Services Authority's principles of "treating customers fairly".

And it says that those customers with several loans and other products with the bank will be treated as core even if one or two of their loans are unprofitable.

A spokesman for the Federation of Small Businesses said that the bank had done well to meet the needs of small businesses in recent months, but added: "RBS should take the hit. If businesses have got a good deal, RBS should respect that."

RBS said in February that it would create a non-core division into which it would put £240 billion of assets.

A spokesman for RBS said the process would not affect how customers are treated. He said: "It is an internal exercise which will have no impact on current lending agreements with our customers or on day-to-day relationships."

Meanwhile, it emerged today that UK Financial Investments, the body that manages the government's stakes in RBS and Lloyds Banking Group, is considering an early sale of the £70bn taxpayer-funded injection into the banks.

UKFI is said to have discussed with a complicated "exchangeable bond" that would see UKFI sell RBS and Lloyds stock at a premium, potentially leading to the government profiting on the investments before the shares return to the price it paid.

Lloyds already repaid £2.56bn this week after investors supported a £4bn stock placing.