UK banks in better shape to repel new entrants than before credit crunch - analysts

UK banks in better shape to repel new entrants than before credit crunch - analysts

The slew of new technologically savvy outfits hoping to break into the British banking market face a daunting task, with the six big lenders actually emerging from the credit crunch stronger than ever, according to the banks team at Citi.

Tesco, Virgin, Metro Bank and Walton & Co are among those making moves to take advantage of public disillusionment with the UK's high street players by establishing their own presence.

The scale of the task facing new banks was highlighted yesterday when supermarket giant Tesco revealed that its finance arm saw revenues slip 9.4% to just £860 million.

While incumbents may be unpopular following the crisis, they are also stronger than ever, with the big six lenders controlling 85% of the market. In fact, the Citigroup banks team says UK financials look undervalued and is advising clients to buy, especially Barclays and Lloyds.

The major barrier to new entrants is funding says Citi. Before the credit crunch new players mainly relied upon the securitisation market for funding but Citi says it cannot see the UK Residential Mortgage-Backed Security (RMBS) market making a significant comeback. Even if it did, the established players would be the first to exploit it to reduce their funding costs.

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