UPDATE 1-UK lawmakers open inquiry into small-business lending

LONDON, Feb 21 (Reuters) - British politicians have launchedan inquiry into small-business lending after criticism of banksover their treatment of companies and accusations of inadequatelending.

State-backed Royal Bank of Scotland has been slammedfor sucking cash out of viable small businesses, while otherleading lenders have been accused of not offering sufficientcredit to small and medium-sized enterprises (SMEs).

"SMEs report that they are struggling to secure adequateaccess to finance, from banks and elsewhere. It is vital to asustainable economic recovery in the UK that this market berestored to working order," said Andrew Tyrie, chairman of theTreasury Committee.

"Like individual customers, SMEs have been badly treated bytheir banks," Tyrie said.

Tyrie added that regulatory barriers and other impedimentsto competition need to be removed to allow small companies totake advantage of new sources of finance, saying that increasedcompetition could also drive up standards.

"SMEs are viewed as sophisticated customers by regulatorswhen, in reality, many are not," he said.

The Committee comprising 13 politicians from across theleading parties plans a short inquiry, starting on Tuesday,focusing on access to finance for businesses, scope for openingthe sector to more competition and the treatment of SMEs bybanks.

The inquiry is likely to look at all of Britain's fivebiggest banks - Lloyds Banking Group, RBS, Barclays, HSBC and Santander UK - but RBS hascome under particular scrutiny because it is 81 percent-owned byUK taxpayers.

An independent report commissioned by the bank in Novemberfound that it had failed to support small businesses in the wayit should. That was followed by a more scathing report by agovernment adviser accusing RBS of pushing small businesses intodefault so that it could charge higher fees and seize control oftheir assets.

Britain's financial regulator and RBS itself have launchedreviews of the accusations. The bank's Chief Executive, RossMcEwan, has said that he does not believe that the bankconducted a "systematic" effort to profit from troubled businesscustomers.

The Treasury Committee's inquiry will start with evidencefrom Russel Griggs, an independent reviewer of how banks handleappeals by companies, along with Priyen Patel, an adviser to theFederation of Small Businesses, and Matthew Fell from theConfederation of British Industry.