Share Name Share Symbol Market Type Share ISIN Share Description
Hsbc Holdings Plc LSE:HSBA London Ordinary Share GB0005405286 ORD $0.50 (UK REG)
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  8.40 2.0% 428.85 425.60 425.90 427.55 415.85 423.85 49,366,276 16:35:27
Industry Sector Turnover (m) Profit (m) EPS - Basic PE Ratio Market Cap (m)
Banks 53,554.5 10,064.1 22.6 17.8 87,335

Bank of England Pressures UK Banks to Lend Amid Early Signs of Credit Crunch

26/03/2020 3:54pm

Dow Jones News


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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.

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