Banks say up to half of 'bounce back' loans could default - report
By Sean Farrell
Date: Monday 01 Jun 2020
(Sharecast News) - UK banks have warned that up to half the £18.5bn "bounce back" loans they make to small businesses during the Covid-19 crisis are unlikely to be repaid, according to a report.
As the prospect of a quick recovery from the economic lockdown fades, three senior bankers told the Financial Times that between 40% and 50% of the 608,000 borrowers under the government loan programme could default on the loans.
The loans of up to £50,000 are 100% backed by the government, leaving the banks with no credit risk. But lenders are worried about a logistically impossible "PR disaster" of pursuing hundreds of thousands of smaller enterprises for the money.
A bank executive said about a quarter of the loans would not have been made under normal lending standards. The Treasury told the banks not to perform their customary credit checks to speed up payments to struggling companies. The government announced the so-called bounce back loans to help smaller businesses not captured by support for large companies.
The terms of participation in the bounce back loan scheme say banks are responsible for chasing borrowers who don't pay. The biggest lenders under the programme are Royal Bank of Scotland, Lloyds Banking Group, HSBC and Barclays.
"A lot of [the loans] will be written off or converted into something else." a bank chairman told the FT. "The question is what's going to happen to all of these loans?"
Former Chancellor Sajid Javid has called for a "bad bank" to separate the emergency loans from the banks' normal business. Some Tory MPs are worried about the prospect of lots of small businesses going bust after being pursued by the state.
A government official said the public would accept the banks trying to recoup the loans while another said the bankers' estimates were too gloomy.
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