Response to coronavirus outbreak - Banking sector - Lansons
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Banking sector response to coronavirus outbreak As of 4th May 2020
Banking Sector Summary
01 Summary and backdrop
02 Media and Commentator
Sentiment
03 Policy initiatives impacting Banks
04 Major announcements
Individual bank summaries are
available on request
lansons.com | Banking Sector Summary 04/05/20 2Summary and backdrop There continues to be pressure on banks to continue to lend to support businesses, with some banks still being criticised for the slow rollout of CBILS loans, with ongoing tension between the responsibilities of lenders and the state to support the wider economy. However, as banks have begun to report their quarterly trading updates, the first since the outbreak began, the impact on their balance sheets has become clear. All banks which have so far reported have revealed a sharp fall in profits, in the main due to provisions being made for the impact of bad loans. This has largely reinforced the view that banks are far more resilient and robust than in 2008, and better able to weather the storm. However, these results reflect the difficulties for banks to be seen to be both supporting businesses and the wider economy, whilst also ensuring they maintain strong balance sheets and lend responsibly. The UK's biggest banks had said last week they will ease their lending conditions to make it easier for small businesses to access cash through the coronavirus business loan schemes, after the chancellor Rishi Sunak offered 100 per cent guarantees to the smallest businesses. Banking body UK Finance said on behalf of the lenders: "Lenders will only ask businesses for information and data they might reasonably be able to provide at speed. We will not require the provision of forward-looking financial information or business plans from businesses applying for CBILS-backed lending, relying instead on our own information to assess credit and business viability." Senior bank executives will today answer questions from the Commons' Treasury select committee on how they have managed emergency loans extended to businesses during the past six weeks and on their preparations for launching new bounce back loans for small businesses. However, Steve Baker, a Conservative member of the select committee, urged the bankers to be forthright about the problems they have encountered from changes of policy, saying: "We know there has been a degree of capriciousness in changing the rules, from requiring the banks not to over-lend to now wanting them to get the money out the door and criticising them when they don't.” Reflecting the conflict between the need to businesses to be supported, and banks to lend responsibly, is the launch of the Bounce Back Loan Scheme (BBLS), 100% backed by the government. However, bank bosses have raised concerns that allowing businesses to self-certify their viability — an attempt to speed up the process for BBLS — will open the system to fraud. Senior executives also fear they will be held personally liable for failing to lend responsibly, which could lead to criminal prosecutions. The banking sector’s reputation as a whole is generally holding up well. While the final outcomes of the CBILS and the BBLS are not known, and the Treasury select committee may illustrate failings by banks, it is generally acknowledged that banks have been working in a difficult environment, addressing demanding requests from government. Recent banks’ results have made clear the financial impact of banks’ lending to support businesses, while also demonstrating the greater resilience of their balance sheets compared to 2008/9. lansons.com | Banking Sector Summary 04/05/20 3
Media and commentator sentiment The media and commentators have continued to follow the progress of the CBILS, but the focus over the last week among banking correspondents has been the recent trading updates, and the impact of the COVID-19 fallout on their balance sheets. W hen reporting on the financial results, the press have almost entirely focused on the headline P&L figures, and the impact of the provisions banks have made for expected credit losses. Beyond the headline figures, there has been coverage of banks pausing or cancelling planned restructuring or developments. HSBC has paused plans to axe 35,000 jobs to help support staff during the outbreak, while Lloyds has held off on 780 planned job cuts. Regarding the risk of bad loans, Alex Brummer at the Daily Mail opined that we must support new 100% guarantees for loans for smaller enterprises despite the risk of bad loans, and hope that when disruption fades, debts will be forgiven. In response to the results, Katherine Griffiths at The Times said that they show the Bank of England was correct to put pressure on banks not to pay a dividend. She stresses the importance of profitability for the banks, saying that shortcomings in that area leave the banks open to foreign takeovers, constrained ability to lend and questions about viability. However, while Barclays’ profits decline was worse than expected, analysts cheered the results, arguing that they showed the bank was robust enough not to need any further capital. As part of their results, banks have also taken the opportunity to point out other measures they have taken in response to the coronavirus outbreak. For example, Santander outlined the number of mortgage customers it had helped who had requested payment holidays. There will likely be continuing coverage of banks’ implementation of the CBILS and the Bounce Back Loan scheme, with the media looking for a repeat of the issues that dogged the CBILS. It has been reported that banks are being ordered to agree to an industry-wide interest rate of less than 3% on loans handed out under the government's Bounce Back scheme to prevent the collapse of small businesses, and the impact of this low interest rate on banks’ balance sheet will also likely be probed, along with wider questions of how rigorous banks are being in assessing future losses. W hile not yet being covered in detail, it has been noted that the FCA is cracking down on UK banks that have been preying on corporate clients seeking financial help during the Covid-19 crisis. The FCA sent a strongly worded letter to bank chief executives last week, after hearing that some lenders were using loan negotiations to pressure corporate clients into hiring the banks for separate share sales. This is a significant reputational risk for banks, and could undo much of kudo that banks have gained for helping to support customers and businesses. The progress of the Bounce Back Loan Scheme will be closely followed over the coming weeks. The difficult position banks are in has recently been summarised by The Times: Having spent years being chastised for over-lending in the run-up to the financial crisis, now they find themselves being browbeaten to radically change their philosophy and open up the floodgates. The balancing act between supporting businesses and customers, while protecting their balance sheets, continues to be the crux of the issue. lansons.com | Banking Sector Summary 04/05/20 4
Policy initiatives impacting Banks
On Sunday Boris Johnson will announce a “road map” to exiting the lockdown. It is not
known how this will be done and what timescale the plans will be enacted, but the
announcements are intended to give the economy a boost and get people back to
work. However, Boris Johnson has repeatedly warned that any announcements must
prevent any second peak and that his announcements will reflect that.
W ith the likelihood of announcements made on Sunday only partially ending the
lockdown and still urging people to work from home and remain social distancing where
possible, the Chancellor is under immense pressure to extend his economic hand outs,
especially the furlough scheme, to prevent any large scale redundancies over the
summer and to keep businesses afloat. This comes as both the government and the UN
have said that that it is unlikely that normal life will return until a vaccine has been found
as there is only so much social distancing measures will be able to do.
Therefore, all eyes will be on government as they set out their plan to unlock the economy
and plan an economic stimulus to get the country going as we exit the lockdown.
Government announcements made so far can be found below:
► UK wide lockdown - Boris Johnson has outlined strict new measures to tackle the
spread of coronavirus, including a ban on public gatherings of more than two
people. He said people should leave home only to exercise once a day, travel to and
from work where “absolutely necessary”, shop for essential items and to fulfil any
medical or care needs. He also ordered the immediate closure of shops selling non-
essential goods. Speaking from Downing Street on Monday, the prime minister said
the country faced a “moment of national emergency” and staying at home was
necessary to protect the NHS, save lives and tackle “the biggest threat this country
has faced for decades”. The UK Coronavirus lockdown has been extended and will
continue until at least May 7t h.
► Exit Strategy Road Map – The Prime Minister will publish a roadmap to coming out of
the lockdown on Sunday.
► Getting the Economy Moving Safely - The government will release a series of papers
next week outlining its approach on how to safely and gradually restart the economy.
► Boris Johnson Returns - Prime Minister Boris Johnson has returned to Downing Street
and will lead the governments response to Covid-19
► The Business Interruption Loan scheme – the scheme – which is aimed at increasing
the supply of credit to UK businesses – increased the amounts businesses can
borrow from £1.2 million to £5 million, and ensured businesses can access the first 6
months of that finance interest free, as Government will cover the first 6 months of
interest payments
► Emergency business loan scheme revamped - The emergency loans scheme for
businesses struggling to survive amid the coronavirus pandemic has been revamped.
Following the changes to the scheme, applications will not be limited to businesses
that have been refused a loan on commercial terms. However, the Treasury did not
put in place restrictions on the interest rates that banks can charge for loans. In further
changes to the system, from Monday, businesses with a turnover of more than £250
million will be able to borrow £50 million from banks under the Treasury’s coronavirus
business interruption loan scheme.
lansons.com | Banking Sector Summary 04/05/20 5Policy initiatives impacting Banks
► 100% state-backed loans for small firms - Small firms are to get access to 100%
taxpayer-backed loans that aims to unlock a backlog of credit checks by banks
amid fears many small firms could fold before getting loans. The loan terms
mean that no capital or interest repayments will be due for one year. Instead,
the government will pay the interest for the first 12 months.
► New Support Finder Tool - The Government has launched a new ‘support finder’
tool which will help businesses and self-employed people across the UK to
quickly and easily determine what financial support is available to them.
► Mortgage payment holiday – UK Finance set out a fast-tracked system, whereby
consumers can apply for a three-month mortgage holiday. However, as with
other forms of forbearance, this is a delay and interest will continue to accrue.
► Cash grant for businesses – In addition to loan schemes, the Chancellor
announced additional cash grants of up to £25,000 per business for businesses in
retail, leisure, hospitality with a rateable value of less £51,000.
► Start-up Support - The government has announced a £1.25bn package to
support innovative new companies that are not eligible for existing coronavirus
rescue schemes. It will match up to £250m of private investment and add £550m
to an existing loan and grant scheme for smaller firms that focus on research and
development.
► Self Employed Package - The Chancellor announced a package of measures to
help people who are self-employed:
⁃ Self-employed people will be able to apply for a grant worth 80% of their
average monthly profits over the last three years, up to £2,500 a month.
⁃ At least half their income needs to have come from self-employment as
registered on the 2018-19 tax return filed in January - anyone who missed
the filing deadline has four weeks from now to get it done and still qualify.
⁃ The scheme is open to those who earn under £50,000 a year - up to 3.8
million of the 5 million people registered as self-employed.
⁃ Unlike the employee scheme, the self-employed can continue to work as
they receive support.
⁃ The money, backdated to March, will arrive directly into people's banks
accounts from HMRC, but not until June.
⁃ The grants will be taxable and will need to be declared on tax returns by
January 2022.
⁃ Company owners who pay themselves a dividend are not covered.
lansons.com | Banking Sector Summary 04/05/20 6Policy initiatives impacting Banks
► Furlough extension – The Government will cover the National Insurance and
pension contributions of furloughed workers, on top of the wages covered under
the scheme. The move added another £300 cost to the government for each
worker with a salary that qualified for the top payment. New guidance on the
Coronavirus Job Retention Scheme also confirmed that those made redundant
after 28 February can be reemployed and placed on furlough. Individuals on
furlough will also be permitted to volunteer without risking their pay. The
Government's furlough scheme for businesses will open today, with employers
now able to apply for a cash grant to cover up to 80 percent of their staff's
wages.
► Further Furlough Extension - The government’s furlough scheme will be extended
for a further month, the Chancellor confirmed. The Coronavirus Job Retention
Scheme (CJRS) will now be open until the end of June.
► More Borrowing - The government will borrow £180 billion from the markets in the
next three months to fund its economic rescue package.
► DWP Claimant Clarification - The Department for W ork and Pensions has
confirmed that people with savings of more than £16,000 will not be eligible to
apply for the government’s universal credit scheme.
► Housing Market Suspended - The government issued official guidance telling
people in the early stages of buying or selling their home to delay the
transaction while emergency measures were in place.
► Account Filling - Companies will be given an extra three months to file their
accounts as they battle to deal with the effect of the coronavirus pandemic on
business. Under the new regime agreed between the Government and
Companies House, up to 4.3 million firms will be allowed to apply for an extension
in order to prioritise running their businesses.
► Additional Bank of England rate cut - on 19 March, the BoE announced it was
cutting interest rates from 0.25% to 0.1%, its lowest ever level. This follows the
earlier rate cut to 0.25% just a week previously. At time of writing, no banks had
announced how they would be responding to the new rate.
► Business rates holiday - The chancellor had announced in the budget last week
that all hospitality and retail businesses with a rateable value of less than £51,000
would be eligible for a 100 per cent rates discount. Rishi Sunak extended that to
cover firms of any size, “irrespective of rateable value” last night.
► Coronavirus job retention scheme (Wage Protection Scheme) - Every employer
will be eligible for the scheme which will provide grants to pay the wages of
workers on furlough but on payroll. Business can apply to HMRC for grants which
will cover 80% of salary, up to £2500 a month. Employers can choose to top up
salary beyond this point. Scheme payments can be backdated to 1 st March
2020 and be open for 3 months. First payments will be in weeks, before the end
of April.
lansons.com | Banking Sector Summary 04/05/20 7Policy initiatives impacting Banks
► Business Interruption Loans Scheme - Interest free for 12 months and available
from Monday. Larger and medium size businesses will now also be eligible.
► Deferring next quarter of VAT - No VAT will be paid from now till June and
businesses will have until end of tax year to cover costs. This measure is worth
£30bn, about 1.5% GDP.
► Business support advertisement - The Chancellor urged businesses to look at
measures available before laying off workers
► Universal Credit standard allowance and working tax credit basic element -
Increased by £1000 a year for the next 12 months
► Suspending Minimum Income Floor - Self-employed will be able to access
Universal Credit at rate equitable with SSP
► £1bn increase in housing benefit and Universal Credit Payments - local housing
allowance will now cover 30% in local area
► Self-assessment payments - Deferred to January 2021.
► Key worker testing - Up to 10 million key workers and their households can now
book a coronavirus test online or through their employer.
► IR35 tax reforms delayed by a year - this reform which prevents individuals from
setting up as a company and thereby avoid tax and National Insurance
contributions had been controversial due to its impact on freelancers [link]
► Coronavirus Bill - The Government has published its emergency Bill on
Coronavirus which will hand huge amounts of power to the Government.
Airports could be shut and people held on public health grounds under
emergency powers. Police and immigration officials would be able to place
people in “appropriate isolation facilities”. Patients could be discharged early to
make space for the seriously ill while social care could be prioritised for those
with the greatest needs.
► Eviction Suspension - Emergency legislation to suspend new evictions from social
or private rented accommodation while this national emergency is taking place.
► Possession Proceedings - No new possession proceedings through applications
to the court to start during the crisis.
► 3 Month Mortgage Holiday - Landlords will also be protected as 3 month
mortgage payment holiday is extended to Buy to Let mortgages.
► Landlord Compassion - The government will also issue guidance which asks
landlords to show compassion and to allow tenants who are affected by this to
remain in their homes wherever possible.
lansons.com | Banking Sector Summary 04/05/20 8Policy initiatives impacting Banks
► Bail Out for Charities - The Chancellor announces £750 million to support for the
charity sector in response to coronavirus.
► School closures - All UK schools to be closed for the foreseeable future, except
for children of key workers – A list of key workers will be announced later today.
► Private Rental Legislation - Responding to a question from Jeremy Corbyn at
PMQs, Boris Johnson has said that the Government will “bring forward legislation
to protect private renters”. We expect this to be published in the coming few
days.
► Rail Season Ticket Refund - Commuters with rail season tickets will receive a
refund if they choose to stay at home during the coronavirus outbreak, the
government has promised.
► Most Vulnerable Protected - Letters are being sent telling 1.5 million people in
England most at risk of coronavirus to stay at home. Local councils and the
military will ensure that food and medicine are delivered to their houses.
► COP26 Postponed - The international climate summit, COP 26, that was due to
take place in Glasgow in November have been postponed until 2021.
lansons.com | Banking Sector Summary 04/05/20 9Policy initiatives impacting Banks
Budget announcements:
Statutory Sick Pay – The government will support SMEs and employers to cope
with the extra costs of paying COVID-19 related SSP by refunding eligible SSP
costs. This refund will be limited to two weeks per employee and available to
companies with fewer than 250 employees.
Business Rates Reliefs – The government has already announced the Business
Rates retail discount will be increased to 50% in 2020-21. To support small
businesses affected by COVID-19 the government is increasing it further to 100%
for 2020-21. The relief will also be expanded to the leisure and hospitality sectors.
Small business grant funding – The government recognises that many small
businesses pay little or no business rates because of Small Business Rate Relief
(SBRR). To support those businesses, the government will provide £2.2 billion of
funding for Local authorities in England. This will provide £3,000 to around 700,000
business currently eligible for SBRR or Rural Rate Relief, to help meet their ongoing
business costs.
Time to Pay – The government will ensure that businesses and self-employed
individuals in financial distress and with outstanding tax liabilities receive support
with their tax affairs. HMRC has set up a dedicated COVID-19 helpline to help
those in need, and they may be able to agree a bespoke Time to Pay
arrangement.
Individual bank summaries are
available on request
lansons.com | Banking Sector Summary 04/05/20 10You can also read
