COVID 19: UK Warns Banks To Prepare For Loan Defaults

By Tosin Olatokunbo

The British government has warned banks in the country to prepare for shocks likely to result from loan defaulters.

The Prime Minister Boris Johnson government said businesses and individuals may be unable to repay money they borrowed to cope with the coronavirus pandemic, the national financial sector regulator said on Tuesday.

Banks in the UK have been criticised for being slow in responding to loan requests from business owners trying to keep afloat after the COVID 19 devastation.

But UK Finance Chief Executive, Stephen Jones said companies should consider their ability to repay before asking for a loan.

Reuters quoting UK Finance, a banking industry body, reported that over 900,000 businesses have taken out state-backed loans worth around 38 billion pounds under schemes introduced to help companies deal with the impact of lockdowns.

Charles Randell, Chairman of the Financial Conduct Authority, FCA said the government will need to intervene because some of the debt incurred would turn out to be unaffordable and this would need to be tackled fast to avoid hurting a recovery.

According to him “Lenders will need to scale their arrears-handling functions quickly, and invest in training and controls.

Randell told an online meeting with the chairs of Britain’s banks that “There needs to be an appropriate dispute resolution system, and we are working with the Financial Ombudsman Service and the Business Banking Resolution Service to ensure that there is capacity to deal with the volumes we may see.”

He said “We can’t allow this to become a replay of the 2008 crisis where the treatment of some small business borrowers did such serious damage to people and to trust in financial services.”

Randell said the pandemic’s impact on markets has raised posers on how banks doll out high-risk loans to business owners.