By Kristy Dorsey

The head of what is set to become the first Scottish-based challenger bank has said the organisation is gearing up for a multi-million pound funding round ahead of next year’s launch into the market for small and medium-sized businesses.

Glasgow-based Alba Bank expects to receive a restricted licence to accept deposits from the Prudential Regulation Authority by the end of next month, which will authorise it to take a total of about £50,000 as a way of testing its systems and procedures. Assuming

all goes well, the plan is to go fully operational in the first quarter of 2021.

Chief executive Rod Ashley, the former head of Airdrie Savings Bank, said Alba is in initial conversations about raising £20-£25 million to cover its first years in operation, which is required to move from a restricted to full banking licence. This would be on top of an initial £4m of funding provided by businessmen Jim McColl, Brian Souter and nine other founding investors.

The bank will launch with 35 staff, including six to eight dedicated bankers providing a personal service to SME customers by visiting them in their places of business and “getting under the skin” of the operation. The aim is to offer an alternative to the “industrialised” model of major banks that has been steadily reducing the number of their customer-facing personnel.

“These people will be authorised and empowered and will be able to make decisions about lending or overdrafts or other financing, much like the bank managers we used to have,” Mr Ashley said.

Alba’s origins date back to Airdrie Savings Bank, which was the sole remaining trustee savings bank in the UK before closing its last two branches in April 2017. At its peak it had eight locations across North Lanarkshire, but regulatory changes in the aftermath of the 2008 financial crisis created hefty additional costs that eventually led the bank’s trustees to decide that a “phased end” to operations was the only option.

Mr Ashley joined Airdrie as its chief executive in December 2012, having previously held the same position at Scotwest Credit Union for more than 16 years. A graduate in accountancy and finance from the University of Glasgow, he set about the challenge of growing Airdrie’s lending book in a bid to bolster its underlying finances.

“The business needed investment in it to be able to continue,” he said. “Historically it was a savings bank, so until the 1980s or 1990s, they didn’t lend any money, they only took savings. So we were relatively new into lending, and the bank was not that large.”

Under Mr Ashley, Airdrie managed to grow its commercial lending by more than 30 per cent to approximately £60m, largely through word of mouth. However, with interest rates at what were then historic lows, the bank was unable to generate enough income from this lending to meet rising regulatory costs.

Barred from raising additional investment capital by the Savings Bank (Scotland) Act 1819 under which it was instituted, Airdrie was forced to concede its Victorian structure was

no longer viable.

“It was a low interest rate environment that the savings bank, given its model, was not geared to cope with,” Mr Ashley said. “Also, there was loads of new regulation coming through as a result of the banking crisis, and much of that applied to Airdrie in the same way it applied to, say, the Bank

of Scotland.”

Airdrie Savings Bank announced its intention to close in January 2017, triggering a rush of what Mr Ashley describes as “white knight phone calls” from business people keen to help save the 182-year-old institution. Most of the proposals had already been examined and dismissed by the trustees as not feasible, though Mr McColl of Clyde Blowers Capital was keen to explore further options.

According to Mr Ashley, Mr McColl was fervent on the need for financial institutions to service the needs of the SMEs that account for more than 99% of private sector firms in Scotland. Although initially knocked back by the Bank of England on a request to use Airdrie’s original banking licence as part of a new venture, Alba’s founders were encouraged to submit a fresh application for a purpose-built bank focused on small and medium-sized business customers.

The personal level of service that Alba proposes to provide is more costly than the automated, streamlined processes that have been adopted by the major lenders. Mr Ashley concedes this point, but believes that pulling the ethos of Airdrie into Alba will create a culture that allows strong SMEs to thrive and grow.

“There is no question, that is absolutely correct,” he said. “Many banks are coming out of doing things this way because they are trying to take costs out of the business equation.

“We are not looking to be the

market-leading bank for SMEs in terms of price. What we are looking to do is be the best in terms of a service that has a lot more to it than others.”

Mr Ashley believes this will be particularly important as the domestic and global economy attempts to emerge from the recession created by the coronavirus pandemic. According to the Fraser of Allander Institute, up to 10,000 Scottish SMEs may be under immediate threat of closure due to a lack of liquidity, with as many as a further 40,000 in financial distress.

“I certainly wish this situation had not arisen,” he said, “but do I think the SME community in Scotland is going to need (Alba) more after this situation than it did before? Absolutely.”