Senior bankers at UK banks have shed light on what the historic scale of recent corporate lending has meant for operations on the ground.
UK small and medium-sized businesses have borrowed £ 80bn ($ 107bn) so far this year, according to the Bank of England, about four times what they borrowed last year .
The surge came as companies look to close cash flow gaps and secure funds to find out if the COVID-19 crisis. The borrowing frenzy was made possible by government-backed lending programs, such as the Business Interruption Loan Program (CBIL) and Bounce Back loans.
READ MORE: 3 million UK jobs threatened by £ 35bn of unsustainable COVID-19 debt
Senior bankers told Treasury Select Committee MPs on Monday that the increase in lending had forced staff to work for weeks and led to years of lending squeezed into months.
“In terms of loans processed, we loaned about 17 years because a lot of them were Bounce Back loans,” Amanda Murphy, UK commercial banking manager at HSBC (HSBA. THE).
HSBC has loaned around £ 14 billion to professional clients, Murphy said. This includes over 223,000 Bounce Back loans, with a maximum size of £ 50,000.
Murphy said HSBC was “inundated” with requests for these loans, with 10,000 requests per day at most. HSBC still has a backlog of around 3,000 loans to process, Murphy said.
Paul Thwaite, managing director of commercial banking at NatWest Group (NWG.L), told the Treasury Select Committee that his bank made 100,000 Bounce Back loans during the program’s first five days in May.
“Exceptionally, during that time it would be few thousands,” Thwaite said. “We literally had to reorganize and reorient the company to recognize these new patterns. “
Susan Allen, managing director of retail and business banking at Santander UK (SAN.MC), said the bank’s business loan portfolio has grown 20-fold this year due to
“I have many colleagues across the country who worked every weekend for seven weekends in a row because they really felt the urgency to bring money to small businesses,” Allen said. to deputies. “Certainly in the first few weeks people realized that these companies really needed a lifeline. Keep in mind that when we started the process with the CBILs, it was well before the leave plan came into effect in June. “
READ MORE: UK government fears Bounce Back loan losses amount to £ 23bn
Executives across the banking industry said that about 40% to 50% of loans made under government programs remain in customer accounts, suggesting companies are building up cash reserves rather than dealing with cash. acute cash flow crises.
“Some clients have been cautious, reduced loans and held them for future spending,” Thwaite said.
The surge in borrowing has undoubtedly kept some businesses afloat that would otherwise have been sunk by the pandemic. However, the surge in corporate debt has raised concerns about a possible wave of defaults in the future. An industry report, released in July, estimated that SMEs could have taken on up to £ 35bn in unsustainable debt – a figure that is believed to be higher today.
Bankers told MPs it was difficult to estimate how many loans they took would eventually deteriorate.
“It’s very difficult to predict because it depends a lot on what’s going on in the economy and how quickly businesses can get back to business as normal,” Allen said.
The Ministry of Business, Energy and Industrial Strategy (BEIS) has estimated that loss rates on Bounce Back loans, which have minimal checks, could be anywhere between 35% and 60%.
Anne Boden, CEO and founder of Starling Bank, told MPs: “A few months ago we were talking about 30-60% of companies that would not be able to repay these loans. I think that will be the bottom part of it now. I think we are seeing positive signs.
But she added: “We need to start thinking about what will happen after these projects are completed. The pandemic does not end once these programs end. We really need advice.
Earlier this year, the Treasury extended the Bounce Back loan scheme until the end of January 2021 and said businesses that had already taken out one could ‘top up’ their loan up to the £ 50,000 limit. The CBILs will also operate until the end of January.
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