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Bank of England asks lenders to outline Covid-19 bad debt estimates

Recent stress tests by the Bank estimated loan losses at UK lenders could hit £80 billion by the end of 2021.

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Britain’s lenders are being asked by the Bank of England to give details on their expected losses on loans due to the coronavirus crisis (PA)

Britain’s lenders are being asked by the Bank of England to give details on their expected losses on loans due to the coronavirus crisis (PA)

Britain’s lenders are being asked by the Bank of England to give details on their expected losses on loans due to the coronavirus crisis (PA)

Britain’s lenders are being asked by the Bank of England to give details on their expected losses on loans due to the coronavirus crisis as the sector is braced for a wave of borrower defaults.

Sam Woods, deputy governor at the Bank and chief executive of the Prudential Regulation Authority (PRA), said the PRA plans to gather together the information from firms ahead of their half-year results this summer.

It comes as the Bank recently estimated that loan losses at banks could hit £80 billion by the end of 2021 as part of a recent stress test of the sector.

It assured last month that UK banks were strong enough to keep lending to households and businesses throughout the crisis.

But Britain is heading for its worst recession in 300 years after the coronavirus lockdown shut down swathes of the UK and global economy, which will see soaring job losses and rising numbers of borrowers falling behind with debt repayments.

In a letter to bank bosses, Mr Woods said: “Ahead of banks’ second quarter 2020 reporting, the PRA intends to gather further information from firms on estimated provision levels.”

“This information will enable us to identify any significant outliers and to further refine our estimates for future capital exercises,” he added.

Mr Woods also set out further guidance on how lenders should take into account the accounting treatment of three-month holidays on mortgage payments for impacted homeowners.

Some of the initial repayment holidays are soon coming to an end, but a City watchdog confirmed on Tuesday that borrowers will be able to extend it for another three months or make reduced payments.

The Financial Conduct Authority (FCA) said people yet to apply for a payment holiday also have until October 31 to do so.

Figures from UK Finance show 1.86 million mortgage payment holidays have been issued as of May 28 – equating to one in six mortgages.

Banks have already begun revealing the impact of loan losses, with HSBC warning in April that bad debts could hit 11 billion US dollars (£8.8 billion) this year due to the pandemic.

PA