Britain's Metro, Starling, ClearBank win cash to fund small businesses

By Huw Jones and Lawrence White

LONDON (Reuters) - Britain's Metro Bank, Starling Bank and ClearBank have been granted a total of 280 million pounds from a fund that aims to boost competition in lending to small firms.

The funds from the Banking Competition Remedies (BCR) scheme that was set up last year seek to help startups and online-only banks wrest business from established rivals such as Royal Bank of Scotland (RBS), Lloyds and Barclays.

After assessing bids for the funds, the BCR said it awarded Metro Bank 120 million pounds, Starling Bank 100 million pounds and ClearBank 60 million pounds. ClearBank teamed up with Tide, a business banking service provider.

"It's a relief to see this funding is now finally being handed out after a lengthy application process," said Mike Cherry, national chairman of the Federation of Small Businesses.

The awards can only be spent on improving the financial products and services that are available to small and medium-sized companies, rather than day-to-day operations.

The cash came from RBS as part of the 775 million pound scheme requiring the bank to boost competition in the sector as a condition of its bailout during the 2008 financial crisis.

BCR said it received 16 applications from six applicants and further grants would be awarded later this year.

The grant offers some respite for Metro, which last month said its risk-weighted assets had risen by about 900 million pounds, ramping up pressure on its core capital ratio and sending its shares to a record low.

Metro, whose shares rose 4.4 percent, said on Friday that it would use the money to open new branches in northern England.

CYBG bank said its application was unsuccessful, sending its shares down 5.5 percent at 186 pence.

UBS cut its price target for CYBG to 193 pence from 200 pence, saying the failure to secure a grant posed a "downside risk" to its cost reduction plans. "We had expected CYBG to receive at least 60 million pounds of the fund given its strong presence in the SME market," UBS said in a note.

Some 425 million pounds has been earmarked for banks to build business account offerings. Smaller banks can bid for a separate 350 million pound pool to encourage firms to switch accounts from RBS to a competitor.

RBS had originally been obliged to spin off its Williams & Glyn banking division that focused on small businesses, a scheme it abandoned as unworkable after spending more than a billion pounds on the project.

(Reporting by Huw Jones and Lawrence White; Editing by Rachel Armstrong and David Goodman)