Will sufferings of RBS and LYG translate to raised competition in UK banking sector?

According to the recent decision by the UK government, both Lloyds Banking Group (NYSE: LYG) and Royal Bank of Scotland Group (NYSE: RBS) will be forced to divest several of their retail bank branches in the forthcoming years if they need state aid. While Lloyds will sell roughly 600 retail branches, RBS will be shedding approximately 300 branches and other assets. The branch sales will reduce LYG’s check-account market share by 5% and lower the bank’s mortgage-market share by 5 percentage points. Similarly, RBS' retail-market share will reduce by 2 percentage points after the sales.

In the recent government move in the UK, both Lloyds Banking Group (NYSE: LYG) and Royal Bank of Scotland Group (NYSE: RBS) will be forced to divest several of their retail bank branches in the forthcoming years if they need state aid. While Lloyds will sell roughly 600 retail branches, RBS will be shedding approximately 300 branches and other assets. The branch sales will reduce LYG’s check-account market share by 5% and lower the bank’s mortgage-market share by 5 percentage points. Similarly, RBS' retail-market share will reduce by 2 percentage points after the sale.

The move is intended to provide an opportunity for new players to enter the market, which is currently dominated by some big players. The UK government plans to promote buyers including small banks and large foreign banks. Tesco Personal Finance, a division of Tesco, and Virgin Money, part of Virgin Group, are the possible buyers of these branches.

The analysts believe, however, that funding issues, high costs related to infrastructure and the relatively limited growth opportunities could dissuade new entrants to the sector.