Over 140,000 SMEs ‘debanked’ by high street lenders

UK Banks

High street banks shut more than 140,000 accounts held by small businesses last year, according to figures obtained by MPs that will fuel concerns about debanking.

Eight banks disclosed account closure data to the Commons Treasury committee after requests for information from the MPs, who are scrutinising the financing for small and medium-sized companies.

The figures, released on Tuesday, showed that closures instigated by banks last year accounted for 2.7 per cent of the 5.3 million business accounts provided by the lenders to SMEs, the committee said. Barclays appeared to be behind the highest rate of closures, although comparisons are difficult because of differences in the information provided by the lenders.

Harriett Baldwin, the Conservative MP who chairs the committee, said: “I hope publishing this data can aid scrutiny of the decisions taken by banks and help to ensure legitimate businesses are not being unfairly treated.”

The industry is facing pressure after NatWest, the taxpayer-backed lender, became embroiled in scandal last summer when its Coutts private banking arm closed the account held by Nigel Farage, the former Ukip leader.

Farage obtained internal documents from Coutts showing its reputational risk committee had believed his public views “were at odds with our position as an inclusive organisation”. This triggered a row over freedom of speech and has stoked broader concerns about the grounds upon which banks drop existing customers or deny accounts to prospective new clients.

The Financial Conduct Authority (FCA) is now reviewing the issue of account access. A report into debanking by the all-party parliamentary group on fair business banking released last week found that thousands of customers were being debanked or having facilities refused every month, often “without the detailed, and troubling, analysis exhibited in Farage’s case”.

Barclays, HSBC, Lloyds Banking Group, NatWest and Santander provided data to the Treasury committee, along with the smaller players Metro Bank, TSB and Handelsbanken.

Barclays said that it served 1.05 million SMEs holding 1.61 million accounts at the end of 2022. It estimated it had closed the accounts of 78,750 small business customers between January to November last year, which is equivalent to 7.5 per cent of its SME clients.

Almost 60 per cent of these accounts were shut because the customer did not provide information that Barclays had sought for regulatory checks. It told MPs that this was “higher than it would otherwise be in a normal year due to a holistic programme of outreach activity undertaken to strengthen our financial crime control environment”.

A further 24.4 per cent of these accounts were closed because they were dormant. Hannah Bernard, its head of business banking, said: “We work hard to avoid the last resort of account closure and encourage customers to keep us up to date with important information.”

NatWest said it had “exited” about 21,000 business customers in the same period, of which 97.3 per cent were SMEs, out of a total SME customer base of about 1.38 million. Lloyds, Britain’s biggest domestic lender, told the committee it had closed 8,115 SME accounts last year out of about 1.3 million, while HSBC said it had exited 25,395 SME relationships by October 31 and that it had 713,961 small business customers by mid-December.

UK Finance, the trade body for the banking industry, said: “A small proportion of accounts are closed, and if this happens the main reasons are financial crime or fraud concerns, being unable to complete customer due diligence or an account being dormant.”