RBS share price up, inks deals with P2P lending platforms

Royal Bank of Scotland Group Plc announced on Thursday that it had reached an agreement with two peer-to-peer lending platforms to deliver more funding options to smaller businesses.

RBS will start referring smaller clients to both Funding Circle and Assetz Capital, if the bank is “unable to financially help at the moment”. The move comes ahead of the governments efforts to force banks to provide customers with alternative funding.

After accusations that the largest British lenders do not provide sufficient funding to smaller businesses, a sector which the authorities sees as important for future economy growth, the government announced plans to make such referrals mandatory.

“A key part of our long-term economic plan is to ensure that British businesses are able to access the finance they need to grow and succeed,” Chancellor of the Exchequer, George Osborne said in a statement on Thursday.

The program will start next week in Scotland and South-West England, with the national roll-out projected to be completed within the next three months.

Online peer-to-peer platforms, or P2P, significantly reduce costs for borrowers as they link them directly to lenders. The outcome of the procedure reflects in lesser charge for the borrower and larger interest for the lender, compared with banks rates.

P2P lending appeared in the UK 10 years ago and has grown rapidly since then, boosted by the financial crisis, during which a lot of banks reduced their finances intended to be handed out as credits. Those actions left smaller businesses underfunded and thus helped the popularization of the P2P practice.

According to a study conducted by the University of Cambridge and innovation-charity NESTA, Britains P2P lending market reached £1.7 billion in 2014.

RBS, which accounts for 33% of the small business lending market, said is set to become the largest lender to refer small business customers. The bank projected that the P2P lending market, which makes up for 1% of the overall loans provided to small businesses, will grow at a 200% annual rate.

“Partnering with the UK’s biggest small business high street lender is a huge vote of confidence in our model, and we look forward to working together to create thousands more opportunities for small businesses to access finance and grow,” said Chief Executive Officer Samir Desai of Funding Circle.

Royal Bank of Scotland Group Plc lost 0.08% on Wednesday and closed at GBX 380.20 in London. On Thursday the stock edged up 0.99% to GBX 383.95 at 13:48 GMT, marking a one-year increase of 10.33%. The company is valued at £43.59 billion.

According to the Financial Times, the 25 analysts offering 12-month price targets for RBS have a median target of GBX 385.00, with a high estimate of GBX 500.00 and a low estimate of GBX 250.00. The median estimate represents a 1.26% increase from the last close price.