Banks allot £20bn for bad loans but may need double
THE country’s largest banks have taken a coronavirus hit of almost £20bn so far this year, however analysts warned that another £25bn of losses could be on the horizon as job cuts and business closures mount around the world.
Ian Gordon, a banks analyst at Investec, said that major UK players have already set aside around £18bn to cover toxic loans amid surging unemployment and a huge cash crunch for businesses during lockdown.
He warned that figure could swell to £45bn by 2022 as firms struggle to recover.
Allied Irish Banks took a €1.2bn (£1.1bn) charge for soured coronavirus loans yesterday, rounding off a gloomy earnings season from the British Isles’ banks as lenders revised their economic outlooks and revealed numbers that were worse than feared.
HSBC this week increased its bad debt provision to $6.9bn (£5.3bn) and warned that loan losses for 2020 could hit $13bn, just days after Lloyds and NatWest Group fell into the red after setting aside a respective £3.8bn and £2.9bn.
Meanwhile Barclays’ provisions for bad loans hit £3.7bn, while Asiafocused
Standard Chartered factored in £1.2bn and Santander UK’s Spanish owner sank to its first loss in 160 years following a €12bn (£11bn) Covid hit, which includes a €6bn write-off on the value of its UK retail banking operations.
Smaller lenders including Metro Bank and Virgin Money have also put aside millions of pounds as a result of the pandemic and warned that hard times are ahead.
Virgin’s total pot for credit loss provisions has increased to £584m, while Metro bosses were forced to set aside £112m to cover the expected costs of loans going sour.
Metro’s economists expect property prices to drop 14.6pc this year and 4.9pc the next before staging a recovery, with unemployment climbing as high as 8.4pc. The lender – fighting to revive its fortunes following a loans scandal last year – fell £241m into the red for the six months to June.