Bank of England asks banks for pandemic loan loss estimates
The Bank of England has asked banks to provide information on their likely loan losses due to the coronavirus pandemic, its deputy governor Sam Woods said today.
The Bank’s Prudential Regulation Authority will gather the data ahead of banks’ second quarter earnings to compare the timing and amount of losses with those it modelled last month.
“This information will enable us to identify any significant outliers and to further refine our estimates for future capital exercises,” Woods said in a letter to banks.
The UK is facing its worst recession in 300 years following the nationwide lockdown that has closed thousands of businesses and led to millions of workers being furloughed.
As a result of the crisis banks’ loan losses are set to jump, with major banks in the UK and US already setting aside billions to cover the expected spike.
The Bank estimated last month that loan losses at banks could reach £80bn by the end of 2021, but that lenders are well capitalised enough to continue to provide fresh credit to households and businesses.
The Bank previously issued guidance to banks on how to take into account government measures such as mortgage repayment holiday and loans when calculating losses and how much cash to put aside to cover them.
Woods today set out further guidance on how banks should assess the capital and accounting treatment for the three-month mortgage holiday payment that ends this month ahead of second quarter earning reports..
HSBC booked an additional $2.4bn (£1.9bn) in loan losses in its first quarter results, cutting its profit before tax by 48 per cent to $3.2bn.
Spain’s Santander was hit by an 82 plunge in net profit in the first quarter after loan losses spiked.