£1.3BILLION: the cost of a rate cut to UK’s big banks
Fears that lower interest rates will NOT be passed on to borrowers Travel firm’s still blazing a trail...with £612m sales
BRITAIN’S big banks are facing a £1.3billion hit to their profits if, as expected, the Bank of England cuts interest rates on Thursday.
There are fears that the banks could attempt to contain the damage by not passing on the benefit of lower rates to borrowers – risking fury from customers and regulators.
Very low interest rates squeeze bank profit margins, so there will be further losses if the 0.25 percentage point cut is passed on to customers.
Many current account holders and depositors are earning zero interest so banks will not be able to reduce the rates they pay to those customers, but at the same time they must cut rates on loans linked to the bank rate and this will slash their profits.
Analysts at investment bank Goldman Sachs have calculated that a quarter-point fall would result in RBS facing a £415million hit, Lloyds £409million, Barclays £226million and HSBC £343 million.
The banks themselves claim the hit would be smaller. Lloyds said last week that the cut would cost it just £100million, while RBS said earlier this year that a quarter-point cut would cost it £96million. Barclays has put the hit at £191 million.
Ian Gordon, an analyst at broker Investec, said: ‘There is an expectation that a rate cut will not be fully passed on to most borrowers.’ He said any sign that the banks are dragging their feet is likely to provoke anger.
Savings rates could be slashed more than many expect because banks are attracting huge amounts of cash from corporate customers, he added.
Economists believe the Bank of England will cut rates and restart its quantitative easing programme this week amid signs that the economy has cooled rapidly following the vote to leave the European Union.
The Bank is also likely to slash its economic growth expectations in its first official forecast since the Brexit vote. It is expected to cut its forecast for 2017 growth from 2 per cent to FORMER SAS officer Mike Gooley has enjoyed a £2million payday as the travel agent chain he founded in 1970 continues to go from strength to strength.
Trailfinders – which is favoured by students and independent travellers alike – saw sales grow 5 per cent in the 12 months to February 2016.
Turnover for the West Londonbased company rose from £584million to £612million while pre-tax profits were up slightly from £18.7million to £19.4million.
As the sole owner of the company, Gooley collected the whole of the £2million dividend after having decided not to pay one the previous year.
The company made charitable donations of £3.5million to The Mike Gooley Trailfinders Charity, which supports youth-orientated community projects, Armed Forces veterans and medical research. Further donations of £100,000 and £78,500 were made to victims of the Nepal earthquake and Great Ormond Street Hospital respectively.
zero. Meanwhile, Barclays and RBS, which reports results next week, performed poorly in stress tests on more than 50 European banks released by European regulators late last week.
The test is designed to show how well leading banks’ capital buffers – measured as a percentage of their total lending – would bear up under a new financial crisis.
Low level of capital in banks in the past contributed to the crisis of 2008, as reserves proved too little to cope with the banks’ losses on bad loans.
RBS showed one of the sharpest falls under last week’s tests. Its capital dropped by 7.5 percentage points to just over 8 per cent.
Barclays also emerged poorly. Although its capital buffers fell less sharply in the hypothetical financial crisis, just 4 percentage points, it fell to a lower level of 7.3 per cent.
None of Britain’s banks fell below the 4.5 per cent legal minimum.
Data from research group IHS Markit earlier this month suggested that the economy is on course for a 0.4 per cent decline for the third quarter of the year. IHS Markit will update its figures this week.