(Bloomberg) -- Credit losses at U.K. banks could be “somewhat less” than expected, the Bank of England said Thursday, three months after it estimated lenders could take an 80 billion-pound ($105 billion) hit from the pandemic.
The central bank “continues to judge that banks have buffers of capital more than sufficient to absorb the losses,” the report on the health of the U.K. financial system said.
Read more: U.K. Banks Could Face $99 Billion Pandemic Losses, BOE Says
This outlook offers some respite for an industry bracing itself for a mountain of bad loans, with the six biggest banks led by HSBC Holdings Plc already setting aside billions of pounds in provisions this year to cover potential losses. Some of the government's emergency support programs are slated to wind down in the coming months, and lenders are preparing for borrowers having trouble repaying.
The BOE's central projection expects a recovery of the U.K. economy in the second half of the year, though unemployment will rise to around 7.5% by the end of 2020. The BOE's forecasts don't include a second nationwide lockdown, but do assume a slow recovery with the possibility of more restrictions.
Britain's recession would need to be twice as bad as the central forecast before it ate into bank's capital ratios to a worrying extent, the BOE said. Banks were urged to continue lending to businesses and consumers and not tighten credit or take “defensive actions” that could make the outlook “materially worse.”
The pandemic hasn't “materially delayed preparations in the financial sector” for Britain's withdrawal from the European Union, the BOE said, and most risks to U.K. financial stability from Brexit have been mitigated. In its traffic light system warning of Brexit risks, nothing is flashing red.
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