The call follows Chairman of the Treasury Andrew Tyrie’s letter to the PRA asking why challenger banks encountered so many barriers to entry.

Rishi Khosla, CEO of OakNorth Bank, said Tyrie’s letter was a positive step, but claimed new banks are facing major difficulties to effectively compete and win business from incumbent banks even though the government wants to foster increased competition within the sector.

“The fact that they have to hold more capital than them [this] makes it harder for them to offer competitive rates and ensure SMEs get the best deals and have the finance they need to grow,” said Rishi.

“Having 15 new banks would be very positive for the market if they are not all at a disadvantage compared with the incumbents, are spread out across different target segments, and are established on a staggered basis.

“Otherwise you effectively reduce the probability of success for all of them.”

Rishi is now calling on the PRA to improve entry for challenger banks saying that the first step it could take would be to withdraw the 8% tax surcharge for new banks.

“During his emergency budget last year, (Chancellor) Osborne announced that he would be replacing the bank levy, which only applied to large banks, with the surcharge, which applies to all banks,” said Rishi.

“This came as quite a blow to new banks such as OakNorth as ramping up taxation on profits means that we will have less capital to reinvest in the business and less retained capital to lend, which makes achieving our goal of lending £1bn to SMEs in the next two years, a lot more challenging.”

Rishi said he would also like to see the extension of the Funding for Lending Scheme apply to new entrants and a review of capital requirements.

Rishi concluded by saying: “We’d like to see the government helping to educate the depositors’ market that, effectively, the new, challenger banks are guaranteed and thus encourage the movement of deposits from the incumbent banks to the new challengers.”