Smaller UK banks seen merging to gain scale

London

EVEN billionaire Richard Branson may need a partner to stand a chance of taking on Britain's largest banks. Lawmakers are encouraging the growth of lenders such as Virgin Money Holdings (UK) plc, backed by Mr Branson, to challenge the dominance of Royal Bank of Scotland Group plc, HSBC Holdings plc, Lloyds Banking Group plc and Barclays plc.

The smaller "challenger" banks may have no choice other than to merge with each other if they hope to compete against these four, which control as much as 80 per cent of the market. "Consolidation in the medium term is inevitable," said Warren Mead, head of challenger banking and alternative finance at KPMG LLP. "They don't have sufficient scale on their own to be effective challengers."