Coronavirus: UK banks expect surge of business loan defaults
The UK’s banks and building societies expect to see a surge of businesses defaulting on their loans in the coming months, survey data has shown, as coronavirus sends the economy into a deep recession.
Small businesses are expected to be the worst hit, with expectations of defaults hitting their highest since the financial crisis for firms of all sizes, Bank of England data showed today.
The dire expectations come with the UK economy in the midst of the worst recession since at least World War II, with businesses shuttered and the public indoors to halt the spread of coronavirus.
The UK’s budget watchdog on Tuesday warned that Britain’s GDP could crash by 35 per cent in the second quarter of the year. The collapsing economy has placed huge financial strain on households and businesses.
The BoEs latest credit conditions survey today showed that lenders expect firms to default on their loans at rates not seen since the financial crisis.
A gauge of expectations of small business defaults shot up to 72.2 from 18 in the previous quarter.
For big businesses, the gauge of default expectations for the coming quarter rose to 63.5 from a reading of 9.9 in the previous quarter. The figure was the highest since 2008, although expectations are often wide of the mark.
The UK’s banks and building societies also expect to reduce their lending to households over the next three months but lend more to businesses as coronavirus sends the economy into a tailspin.
The supply of credit to households for things like house purchases and credit cards is expected to drop significantly in the second quarter.
Yet lenders are expecting to give out more to businesses, with firms desperate to access cash to keep their companies afloat as the economy enters recession.
Banks and building societies surveyed by the BoE also expected loan defaults to surge as firms struggled to meet their liabilities.