UK banks 'must adapt to economy'

The British banking sector needs to adapt in order to service the small to medium-sized enterprise (SME) sector if it is to play a role in the country's economic recovery, an industry expert has declared.

Ana Botin, chief executive of Santander UK, argued there are many SMEs with the potential for further growth which are struggling to raise finances, partly because of the out-dated models many banks offer them.

Writing in the Financial Times, she pointed out SMEs employ almost two-thirds of people in the private sector and generate half of its turnover, indicating just how important this area is for the UK's financial health.

However, various cultural and technological shifts have made it harder for banks to engage with smaller firms, especially on a local level.

"Competition and technology have driven all businesses - including banks - to seek ever greater economies of scale, which can make it harder to ensure a profound understanding of these innovative small companies," she explained.

According to Ms Botin, banks need to explore innovative new ways to support high-growth companies, while reviving the best of old-fashioned, relationship-focused banking as much as is possible in a globalised world.

The concept of the friendly local bank manager has largely disappeared over the last few decades, but forming strong connections with communities is crucial for banks that wish to retain their relevance and improve their reputation, the Santander chief suggested.

With the world's middle classes set to expand as emerging markets in countries such as China and India continue to mature, British companies of all sizes are set to see the potential for international growth in the coming ten years.

"So we need to find a compromise that both allows high-growth small companies to obtain the services they need and keeps the banks safe and stable," concluded Ms Botin.

According to David Davis and John McFall - both politicians and board members of the New City Network - the financial services industry needs to diversify its lending to SMEs.