UK Banks Warned By FCA To Prepare For Coronavirus Loan Debt

June 22, 2020

The Financial Conduct Authority (FCA) told UK banks to be prepared for an onslaught of debt brought on by coronavirus borrowing. Since the pandemic started earlier this year, 860,000 UK businesses have received government-backed loans, but many business owners may not be able to pay them back.

Since the government launched the Coronavirus Business Interruption Loans (CBILS), Coronavirus Large Business Interruption Loans (CLBILS), and bounce back loan schemes, UK companies have borrowed approximately £38.4bn.

Default Risk

The FCA warned British banks that they need to speed up response preparations in order to deal with businesses who are unable to repay the borrowed sums. Otherwise, the debt could lead to a slower economic recovery for all.

Charles Randell, Chair of the FCA, held an online meeting with British banks, during which he advised:

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

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.”

Many people fear a repeat of the 2008 recession, or worse, as a result of the current private and public debt.

He went on to say: “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.”

This comes just days after the Bank of England governor, Andrew Bail, warned of the looming threat that the substantial emergency coronavirus loan debts present.

In a report published in the Sunday Times by TheCityUK’s Recapitalisation Group, it was predicted that by 2021, UK companies will owe a total of £107bn worth of unsustainable debt as a result of the crisis – more than half of these businesses being SMEs. Around £32bn to £36bn of this debt will come from amounts borrowed from the Covid-19 government loan schemes.