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Emergency Covid loan defaults up to £ 5 billion

UK Business and Economy Updates

Officials and bankers estimate that £ 5 billion of state-sponsored government Covid emergency loans are at risk of not being repaid, and initial data suggest that defaults are much lower than initially feared. Said that.

The assessment is based on the first few months of debt repayment and has so far been overlooked by 5-10% of small and medium-sized (SME) enterprises using the government’s £ 47.4 billion “bounce” coronavirus support scheme. It shows that it is. pay back debt.

But at the start of the pandemic, one government official said the indicator default rate was “not as bad as all the dark people suggested” so far.

Bankers said the unexpected recovery from the pandemic helped regain corporate economic independence. One bank executive said that up to 5 percent of all loans had already been fully repaid on the day the 12-month interest-free payment period ended.

“It’s the best guess at the moment, but the first sign is that the loss is unlikely to reach tens of billions, as feared,” said an executive. “It’s clear that not all loans were desperate, but were done with caution.”

However, some bankers may have been able to push the worst problem back through a “pay as growth” scheme where the government offers up to 6 months of repayment leave and up to 10 years of extended loan terms. I warned that there was. The Treasury declined to comment.

The government issued a preliminary estimate last summer that 35 to 60 percent of borrowers could default on loans. The Budget Responsibility Office (OBR) in December estimated that the guarantee behind the bounce back loan could cost taxpayers as much as £ 19 billion.

Banks could offer state-guaranteed loans of up to £ 50,000 under a loan scheme last year when the government was rushing to help hundreds of thousands of small businesses at risk of bankruptcy due to coronavirus restrictions. I did. This requires taxpayers to bear all losses.

Authorities said they do not have an estimate of which percentage of fraudulent loans are part of the £ 5 billion figure.

Since all loans have a 90-day repayment period, banks will begin repayment of their first loan in June, so early default valuation of the portfolio should begin in the coming weeks. However, banks are expected to contact and seek cooperation with borrowers before pursuing debt collection. If the company cannot repay, the lender will try to trigger a state guarantee.

Companies were designed to raise money for problematic companies as soon as possible, allowing them to access the bounce back loan program through a streamlined application process that included only a limited number of checks. This led to a large initial estimate of potential losses to taxpayers.

Bankers say the default estimates for other emergency coronavirus loan schemes with stricter checks were much lower. They estimate that the coronavirus business suspension loan scheme for large SMEs has less than 1 percent exposure to non-performing loans.

Emergency Covid loan defaults up to £ 5 billion

Source link Emergency Covid loan defaults up to £ 5 billion

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