Small business

The Forum of Private Business' latest banking survey has produced some interesting results, writes Michael Imeson

Here's a good question. Which is the best bank in Britain for small and medium-sized businesses? Is it Barclays, HSBC, Royal Bank of Scotland/NatWest or Lloyds TSB?

Surprisingly, considering that the big four between them have about 80% of the market, the answer is none of the above. The best is not British, but Irish - Allied Irish Bank (GB). That's according to the Forum of Private Business' ninth biennial bank report published last month. AIB, one of Ireland's two biggest banks, but with a small market share in the UK, has come top of the survey for the sixth time in a row.

Other banks with small market shares also did well, outshining several of their bigger rivals. The survey's performance league table puts AIB (GB), Yorkshire and Clydesdale in the top three, and NatWest, Lloyds TSB and Barclays in the bottom three.

Factors taken into account when compiling the score for each bank include competitiveness of interest rate and charges, industry knowledge, efficiency and reliability. Significantly, 40% of small businesses banking with the three banks at the bottom of the table had cause to complain.

FPB's survey, Private Businesses and their Banks, is co-written by the University of Nottingham. It is the largest and longest running survey of its kind, and its researchers asked around 5,000 businesses about their relationship with their bank. The forum represents 25,000 small and medium-sized enterprises employing more than 600,000 people and is a powerful lobbying voice in Britain and the EU.

UK Small Business Minister, Nigel Griffiths, handed AIB (GB) the award for Best Bank at the report's launch. He also presented awards to HSBC for Best Clearing Bank for Small Business; to Clydesdale for Most Improved Bank; and to Lloyds TSB for Best Communications (for its implementation of the Office of Fair Trading recommendations on bank charges, interest on current accounts and making it easier for firms to switch bank accounts).

FPB's chief executive, Nick Goulding, praised AIB (GB) for its 'remarkable' consistency and Clydesdale for its huge improvement in moving from eighth to third place since the last report. He added that the wide variation in individual banks' performances - 70.9 at the top, 52 at the bottom - reflected the need for the Bank of England to re-open its Small Firms Division, which closed earlier this year.

Goulding said it was an 'ill-judged move' because it 'immediately removed the protection the Bank of England can provide to the small business community'. He believes that if small businesses 'have the full clout' of the Bank behind them, it would encourage banks to 'play fair' and to provide a more consistent service.

Goulding also said there was little evidence in the report to suggest that the OFT recommendations on making bank switching easier for businesses had led to significant numbers actually doing so.

Aidan McKeon, AIB (GB)'s managing director, said: 'Our customers tell us that they want people who know and understand their business, who can make decisions, and who will be with them for the long term. What's pleasing is that they are not only telling the FPB the same thing, but that they are also telling their peers.'

He added: 'We don't have call centres. We don't offer anonymous on-line services. We believe in good, old-fashioned personal service. That's why our customers come to us, and stay with us.'

Another reason for the Irish bank's success, which it does not admit to, is that having a small UK market share allows it to cherry-pick the most profitable customers from other banks and to avoid start-ups, which are higher risk. The net result is clear: for SMEs choosing a bank, smallest is often best.

Michael Imeson is editor of Eclectic, an Institute of Financial Services magazine, and director of publishing agency Financial and Business Publications.