Bank of England Pressures UK Banks to Lend Amid Early Signs of Credit Crunch
March 26 2020 - 11:54AM
Dow Jones News
By Adam Clark
The Bank of England on Thursday urged British banks to keep
lending to businesses in the face of a likely recession caused by
the coronavirus pandemic, as it reported evidence of a credit
crunch despite the U.K. government's 330 billion-pound ($390
billion) loan guarantee package.
The BoE's Prudential Regulation Authority sent an open letter to
bank chief executives calling on them to avoid an "unnecessary
tightening in credit conditions" as lenders look to estimate their
expected losses on bad loans for the year ahead.
While the central bank noted that each bank has to form its own
view on how much money to set aside for loan losses, it offered
guidance which emphasized that banks should consider the potential
for a quicker recovery from a coronavirus-induced recession than
from the 2008 crash.
"Compared to the practices we can see pre-pandemic, it seems
likely that this will involve in many cases a shortening of the
forecast period and a much quicker return to the long-term
historical trend," said Sam Woods, chief executive of the PRA.
The central bank's warning came just a day after U.K. treasury
chief Rishi Sunak put political pressure on lenders to keep
providing cash to stricken businesses, in the form of a joint
letter with the Bank of England and Financial Conduct Authority.
The letter said banks must show a "willingness to maintain and
extend lending despite the uncertain economic conditions."
Despite the government saying last week that it would offer
GBP330 billion in guarantees--equivalent to 15% of U.K. gross
domestic product--in order to encourage lending, the Bank of
England said Thursday that it had seen credit availability tighten
across an increasing range of sectors. This was based on its
quarterly report of business conditions, drawn from discussions
with more than 700 businesses.
"Contacts reported that some banks were imposing more stringent
lending conditions on new borrowers across all sectors. And some
banks were said to be taking longer to approve loans due to the
high volume of applications," the Bank of England said.
"While companies welcomed the facilities announced by the Bank
and the Government to support businesses, early reports suggested
that there were some concerns that funds would take too long to
arrive. Companies that are not eligible for the schemes were
worried that banks would not provide sufficient support. Some
companies were reluctant to increase their borrowing and believed
their survival depended on grant finance and debt holidays," it
added.
One high-profile source of controversy has been the government's
Coronavirus Business Interruption Loan Scheme which promised
finance of up to GBP5 million for smaller businesses hit by the
pandemic. Although the government promised to take 80% of the
losses in case such a loan were to go bad, in order to reduce the
risk for the lenders, many business owners took to social media to
complain that banks were still asking for personal guarantees from
directors, potentially putting their savings or personal assets at
risk.
Majority state-owned lender Royal Bank of Scotland Group PLC
said it wouldn't ask for personal guarantees from directors looking
for such loans, while HSBC Holdings PLC said it wouldn't ask for
such guarantees on loans up to GBP250,000.
Write to Adam Clark at adam.clark@wsj.com
(END) Dow Jones Newswires
March 26, 2020 11:39 ET (15:39 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
Banco Santander (NYSE:SAN)
Historical Stock Chart
From Aug 2024 to Sep 2024
Banco Santander (NYSE:SAN)
Historical Stock Chart
From Sep 2023 to Sep 2024