Nationwide is the UK's most 'reputable' bank

Credit: D K Grove/Shutterstock.com

RI's survey of 35,000 customer ratings revealed that Halifax and Virgin Money joined Nationwide to form the three most reputable names on the UK high street, while RBS came bottom, managing only a "Weak" score of 51.7 out of 100.

On top of this, the survey gave the UK's banks as a whole an "Average" score of 64.5, representing a growth of 11.8% over the "Weak" score of 57.7 they attained in only 2015.

This would suggest that the public's faith in the banking sector is steadily recovering after the financial crisis, yet given that little has changed in this sector since 2015 in terms of regulation, it's most likely that the recorded growth in reputation is more about the willingness of banks to award credit than anything else.

Seven dimensions

The RI's survey measured the reputation of British banks along the following seven dimensions:

• products and services
• innovation
• workplace
• governance
• citizenship
• leadership
• performance

Along each of these dimensions, the survey's respondents then rated each bank out of 100, with the following ranking being produced:

As might be expected, RBS is at the bottom of the table, if only because it continued to be embroiled in scandals over the past year, with the bank being found guilty by the FCA in November of "systematic" mistreatment of small businesses in financial distress.

Conversely, Lloyds are the year's big movers, moving from 11th to 4th place after having become a wholly private-owned bank again last month, and after their misconduct penalties for 2016 halved to £2.1 billion.

Banking reform?

Yet the fact that Lloyds still had such hefty misconduct penalties reveals how, even if the reputation of the UK's banks are gradually improving, they're still a long way from being wholly clean and trustworthy.

Indeed, little has changed in terms of regulation since 2015 to suggest that the banks are now less capable of doing wrong, with the last piece of new banking legislation being the Financial Services (Banking Reform) Act of 2013.

This forced banks to separate their retail and investment arms, something which has arguably made them more cautious and sensible in how their sell products to the general public.

However, it didn't prevent Lloyds from amassing their steep misconduct charges for 2016, and neither did it prevent the recent Barclays whistleblower scandal, or Lloyds' own insurance mis-selling scandal that emerged last month.

Handing out more money

Because of this, it's likely that something beyond the simple "cleaning up" of banking is at work in the improved reputation scores, and it's most likely that this something is the increased willingness of banks to lend to customers.

For example, in November, the Bank of England warned that consumer credit increased by 10.2% in the year to September, raising the "prospect of a further rise in household indebtedness as increases in unsecured debt outpace growth in household income".

Similarly, banks such as Virgin Money - who ranked second for reputation - have made it clear that they intend to expand their credit lending by 11% by the end of the year.

This comes at a time when incomes are struggling to keep pace with the rising cost of living, meaning that more people are looking to the banks to help them make ends meet.

And it's precisely because most banks have been more willing to lend that the public have been happier with them in past years, and that their collective reputation has grown.

Risks

However, as the Bank of England and others have cautioned, if the rate of borrowing continues growing at such high rates, and if banks aren't strict enough with their underwriting standards, then a shock to the UK economy may result in another crisis for the financial industry.

People may find themselves unable to repay loans and credit cards, the banks may abruptly withdraw credit as a result, and their unwillingness to lend may once again find their reputations sinking back to where they once were several years ago.

This is ultimately why, even though the RI's survey may be welcome news for the UK's banks, it would be a bad idea to get too comfortable.