BANKS are expecting to make a loss as a result of the coronavirus crisis, the head of UK Finance has warned.
The chief executive of the trade association, Stephen Jones, told the Treasury Select Committee today that he expects UK banks to take a hit as it works with the government to stop households slipping further into debt during the pandemic.
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The banks are currently offering payment holidays for borrowers on mortgages, credit cards and personal loans, as well as emergency loans for small businesses.
When asked by MPs whether the banks were expecting to profit from the coronavirus through high interest rates in the aftermath of the pandemic he said that he "finds that very hard to believe" in light of the current economic forcasts.
Yesterday, the Office for Budget Responsibility (OBR) predicted the worst GDP slump since records began in 1908, with the economy shrinking by 35 per cent in the next quarter.
He said: "I think with the forbearance being taken, extension of risk appetite and scenarios that the Office for Budget Responsibility is painting of economic contraction, I find it very hard to believe that the banks will profit from this crisis.
What help is there for businesses?
- The government has offered to furlough workers through its Coronavirus Jobs Retention Scheme, paying up to 80 per cent of wages up to £2,500 a month
- While self-employed workers can get up to 80 per cent of profits paid by the government for the next three months – again up to £2,500 a month
- Under the Coronavirus Business Interruption Loan Scheme, SMEs can get loans and overdrafts of up to £5 million for up to six years and the government with guarantee up to 80 per of these loans
- Small firms can get grants of up to £10,000 to help with ongoing business costs
- It has also announced VAT payments and self-assessment tax returns are deferred for three months
- SMEs that cannot afford their tax bills can ask HMRC for a “time to pay” arrangement so any debt collection is suspended
- And they can get up to two weeks’ sick pay – almost £200 per employee up to 250 staff members – refunded by the government.
- A 12-month business rates holiday has been introduced for many businesses
"I think it's a question of how significant will the losses be, but I would point to the very fast action by regulators to release capital buffers to support the economy at a time of crisis to ensure that the maximum amount of lending can be made by banks in the circumstances."
Business Secretary Alok Sharma has already warned the banking industry that it's their turn to "repay the favour" a decade after the taxpayer bailed them out during the financial crisis.
In 2008, the government ploughed £500billion of taxpayer's money into a rescue package to stop them sinking.
Mr Jones was one of the industry insiders being grilled by MPs today over the issues with the Chancellor's coronavirus schemes to limit the impact on the economy.
This included the delays in dishing out Coronavirus Business Interruption Loans (CBILS) to small businesses, putting thousands at risk of going under.
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Figures released by UK Finance this morning showed that around 21 per cent of those who'd applied for help had been given the cash.
The biggest delays were being experience by those applying for loans of less than £25,000.
Mr Jones said that to speed up the process, which is still subject to financial stress-tests, the government should consider fully guaranteeing small emergency loans to business.
At the moment, the banks take on 20 per cent of the risk, unlike countries such as Germany, where loans are 100 per cent state-backed.
The Bank of England Deputy Governor Sam Woods was also at the meeting and told the committee that Britain's banks have enough funds to keep lending to the economy even under the deep recession scenario outlined by the OBR.
The BoE has allowed banks to tap some of their capital buffers to support up to £190 billion of lending, well above the amount they lent last year, Mr Woods said.
"Banks have ample capacity from a capital point of view," he added.
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