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Banks (Finance)

Britain's Biggest Banks Face Up to £25 Billion in Loan Losses

Strategic Insights

— 1 min read

Britain's five largest banks - HSBC, Barclays, Lloyds, Royal Bank of Scotland, and Santander UK - are bracing themselves for a significant hit to their balance sheets due to a surge in loan defaults, according to Fitch Ratings. The credit rating agency has warned that the banks could report up to £25 billion in loan losses this year, with total expected credit losses estimated to be at least £17 billion. This represents a significant increase from the £6.1 billion in loan losses reported by the Big Five in 2019.

Key Takeaways:

  • Fitch Ratings estimates that the five largest banks in the UK could report up to £25 billion in loan losses this year, representing a significant increase from the £6.1 billion reported in 2019.
  • The expected credit losses are driven by a surge in borrower defaults, particularly in businesses that are going bust and individuals who have lost their jobs or suffered income cuts.
  • Despite the uncertainty surrounding the scale of the losses, Fitch believes that the banks are well-capitalised and should be able to absorb losses without resorting to emergency fundraisings.
  • However, the losses could delay the speed at which banks are allowed to resume dividend payments.
  • Barclays, HSBC, RBS, Lloyds, and Santander UK have all been impacted by the crisis, with each bank taking a different approach to estimating its future loan losses.
  • Virgin Money has also been affected, setting aside £232 million for expected loan losses and announcing that 100,000 of its customers have been put on payment holidays.

Statistics:

  • Estimated total expected credit losses for HSBC, Barclays, Lloyds, Royal Bank of Scotland, and Santander UK: at least £17 billion
  • Projected loan losses for the Big Five banks: up to £25 billion
  • Loan losses for the Big Five banks in 2019: £6.1 billion
  • Number of Virgin Money customers put on payment holidays: 100,000
  • Amount set aside by Virgin Money for expected loan losses: £232 million

Sources:

  • Fitch Ratings, "UK bank loan losses: expected credit losses could rise to £25 billion" (April 2023)
  • The Financial Times, "Britain's biggest banks to report £25 billion in loan losses" (April 2023)
  • The Daily Telegraph, "Lloyds Banking Group warned on loan losses" (April 2023)

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