Banks warn that up to half of ‘rebound’ loans will not be repaid

monday 01 june 2020 13:39

British banks have reportedly warned that up to half of the government’s “rebound loans” are unlikely to be repaid.

Senior bankers have estimated that between 40 and 50 percent of rebound borrowers could default on debt, report says by the Financial Times.

As businesses brace for a slow economic recovery from the coronavirus crisis, lenders are reportedly pressuring the Chancellor to prepare for the collapse of hundreds of thousands of small businesses.

The rebound loan program was introduced by Rishi Sunak after the coronavirus business interruption loan program was criticized for not being accessible by some companies.

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The new rebound program offers 100% government guaranteed loans of up to £ 50,000 to small businesses. As of May 24, 608,069 small and medium-sized businesses had borrowed more than £ 18 billion. They have proven to be immensely popular with over 100,000 loans approved on the first day.

The 100% guarantee saves banks from credit risk, but the FT has signaled that executives fear that the pursuit of small businesses in the aftermath of the crisis could be a “public relations disaster.” The terms of the rebound loan program make it clear that the onus is on lenders to sue borrowers if they do not repay the loan.

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The Treasury and the British Business Bank have told the banks they should use their usual approach to collecting the loan.

Major lenders, RBS, Lloyds, HSBC and Barclays, have told companies the money is a loan, but nothing is owed for the first 12 months with no interest during that time.

“Certain arrangements will have to be made. Many of them will be written off or converted to something else, ”a bank president told FT.

“In most cases, the idea of ​​the government taking stakes in these companies is unrealistic – they are just too small. So the question is, what will happen to all these loans? “

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