Britain's banking shake-up will take at least five years to bear fruit -regulator

By Huw Jones

LONDON, March 11 (Reuters) - It will take another five yearsor more to make real inroads into the dominance of Britain'sfive biggest banks, a senior Bank of England official said onWednesday.

Two years ago the government and regulators made it easierfor new entrants to set up shop in attempt to loosen thechokehold of Lloyds, Barclays, HSBC,Royal Bank of Scotland and Santander UK, whichprovide about 85 percent of current accounts in Britain.

But Martin Stewart, director for banks at the central bank'ssupervisory arm, the Prudential Regulation Authority (PRA), saidthat a more diversified market will not emerge until 2020 at theearliest.

"Given both the pipeline of applications in progress andinvestors expressing an interest in submitting an application,we would expect to see five or six bank licences being grantedper annum for the next few years," Stewart told a mortgageindustry conference.

"But it will take many years for them to make significantinroads into the market shares of the established players."

The new banks have focused on targeted market opportunitiesthat are poorly served by the incumbents, such as invoicefinance or small businesses in a specific region.

Newcomer Aldermore made a rousing stock market debuton Tuesday, but business for new entrants is still tiny comparedwith the Big Five.

Aldermore's lending grew by 42 percent last year to 4.8billion pounds ($7.17 billion), almost insignificant whencompared with the 216.7 billion pounds loaned by Barclays toindividual customers and businesses in the first half of lastyear.

OakNorth is the latest challenger to be granted a licence,appointing a former top regulator, Adair Turner, as its seniorindependent director.

But despite the flurry of new players, Stewart said thatfurther consolidation in the sector, even among the new banks,is likely even if competition and diversification continue toset the agenda.

"If the UK wants a more diversified retail banking market,we need to be prepared to wait until 2020 and beyond," he added.

The PRA has granted 11 new banking licences since the newentry rules were introduced, some of which have gone to overseasplayers from countries such as China, India and the UnitedStates.($1 = 0.6693 pounds)

(Editing by David Goodman)