Senior bankers at Britain’s banks have illuminated what the historic scale of recent business lending has meant for operations on the ground.
Small and medium sized businesses across the UK have borrowed £80bn ($107bn) so far this year, according to the Bank of England, around four times what they borrowed last year.
The surge has come as companies look to plug cashflow gaps and secure funds to whether the COVID-19 crisis. The borrowing spree has been enabled by government-backed lending programmes such as the coronavirus business interruption loan scheme (CBILs) and Bounce Back loans.
Senior bankers told MPs on the Treasury Select Committee on Monday that the surge in lending had forced staff to work for weeks on end and led to years worth of lending compressed into a few months.
“In terms of loans processed, we did about 17 years worth of lending because so many of them were the Bounce Back scheme lending,” Amanda Murphy, head of commercial banking UK at HSBC (HSBA.L), told MPs.
HSBC has lent around £14bn to business customers, Murphy said. This includes more than 223,000 Bounce Back loans, which have a maximum size of £50,000.
Murphy said HSBC was “inundated” with requests for these loans, with 10,000 applications a day at the peak. HSBC still has a backlog of around 3,000 loans to process, Murphy said.
Paul Thwaite, chief executive of commercial banking at NatWest Group (NWG.L), told the Treasury Select Committee his bank had extended 100,000 Bounce Back loans in the first five days of the scheme’s operation in May.
“Unusually, in that period it would be low thousands,” Thwaite said. “We literally had to reorganise and re-pivot the business to recognise these new schemes.”
Susan Allen, chief executive of retail and business banking at Santander UK (SAN.MC), said the bank’s corporate lending book had grown by 20 times this year as a result of
“I have many colleagues up and down the country who worked every weekend for seven weekends in a row because they really felt the urgency of getting money to small businesses,” Allen told MPs. “Certainly in the early weeks people understood that these businesses really needed a lifeline. Bear in mind that when we started the process with CBILs, it was well before the furlough scheme came into play in June.”
Executives from across the banking sector said around 40% to 50% of lending done under the government schemes remained in customer accounts, suggesting businesses were building up cash buffers rather than facing acute cashflow crises.
“Some customers have exercised caution, drawn down on the lending and kept it for future spend,” Thwaite said.
The borrowing surge has undoubtedly kept some businesses afloat that would have otherwise been sunk by the pandemic. However, ballooning corporate debt has provoked alarm about a possible wave of defaults in the future. An industry report, published in July, estimated that SMEs could have taken on as much as £35bn of unsustainable debt — a figure that would be higher today.
Bankers told MPs it was difficult to estimate how many loans they had written would ultimately go bad.
“It is very hard to predict because much depends on what happens in the economy and how quickly businesses can get back to operating in some normal way,” Allen said.
The Department for Business, Energy, and Industrial Strategy (BEIS) has estimated that loss rates on Bounce Back loans, which carry minimal checks, could be between 35% and 60%.
Anne Boden, chief executive and founder of Starling Bank, told MPs: “A couple of months ago we were talking about something like 30% to 60% of businesses not being able to pay back these loans. I think it’s going to be the lower end of that now. I think we see some positive signs.”
But she added: “We have to start thinking about what happens after these schemes finish. The pandemic doesn’t end once these schemes finish. We really need notice.”
Earlier this year the Treasury extended the Bounce Back loan scheme until the end of January 2021 and said businesses that had already taken one out could “top up” their loan to the £50,000 limit. CBILs will also run until the end of January.
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