British Banks Keep Flooding Economy With Billions in Loans

(Bloomberg) --

British banks are flooding the economy with billions in loans every week as the demand for emergency funding for businesses persists.

Lenders have so far issued over 31.3 billion pounds ($39 billion) to more than 745,000 businesses through government-backed schemes, according to UK Finance which represents finance and banking firms in London. As of May 31, banks have lent more than 3.8 billion pounds, with demand for emergency loans continuing in the coming days, it said.

“Lending provided under government-backed schemes is a debt not a grant,” said Stephen Jones, chief executive of UK Finance. “Firms should carefully consider their ability to repay before applying.”

The U.K. government has put in place emergency schemes to help the economy survive the lockdown, which has brought business to a halt for more than two months. It launched the so-called Bounce Back Loans, which are loans administered by commercial banks but 100% guaranteed by the state.

That followed other initiatives such as the Coronavirus Business Interruption Loan Scheme, which launched on March 23, and offers guarantees on 80% of the debt. The CBILS scheme attracted criticism from small firms given the difficulties getting access and the high interest rates applied by lenders.

Banks are in the hot seat as they are under pressure to lend, but at the same time want to avoid a pile of bad loans accumulating in their portfolios.

The regulators have relaxed the capital requirements to allow banks to lend but firms have already booked multi billions provisions in the first-quarter in anticipation of loans going sour. And more may come, some analysts have warned.

Barclays Plc's Finance director Tushar Morzaria told analysts following the first-quarter results, that “there's no doubt there will be some folks that will not be able to repay these loans.”