British Banks Should Brace for Wave of Credit-Card Defaults, Goldman Says -- Financial News

By Emily Nicolle

Of Financial News

Banks with large credit-card businesses will soon experience "a marked deterioration" as millions of Brits stop receiving furlough payments from the end of this month, according to Goldman Sachs.

Credit-card providers such as Lloyds Banking Group PLC have enjoyed four consecutive months of declining default rates, analysts for the U.S. investment bank wrote in a note Thursday.

"In line with our economists' forecast of a sharp increase in unemployment over the coming months, however, we see the benign credit-card asset quality as temporary and would expect to see a marked deterioration when payment holidays and various government-support measures roll off," the analysts wrote.

Data from the U.K.'s biggest credit-card issuers, collated by Goldman, showed that the total number of credit cards with missed payments continued to decline in September and remained below pre-pandemic levels. The number of cards with outstanding payments of up to 89 days, however, rose by 20 to 30 basis points in the two months to the end of September.

Goldman's research excluded Barclays PLC as it has yet to release data for September. The number of Lloyds credit cards with outstanding payments up to 89 days old increased by 20 basis points month on month.

Analysts said the drop in cards with missed payments over the summer was driven by the "extensive usage of payment holidays." Furlough payments to workers, protection from eviction for renters, and mortgage holidays all come to an end this month.

Chancellor Rishi Sunak updates Parliament on Oct. 22 about further support for jobs for people living in areas under the tier-two Covid-19 restrictions.

Local leaders whose areas have been designated "high" or "very high," such as London and Manchester, have criticized the government for not providing sufficient support to affected individuals and businesses.

Website: www.fnlondon.com

(END) Dow Jones Newswires

October 22, 2020 10:01 ET (14:01 GMT)

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