Covid loan crisis as taxpayers foot £4.4bn bill to cover losses with more still owed in arrears or defaults
The cost of Covid-era loan losses to the taxpayer could total £11bn, according to figures released by the British Business Bank
British banks have already been paid £4.4bn to cover losses including fraud with more in arrears or default.
Of the £77bn issued across three different loan schemes, according to figures published , £4.4bn has been paid out to cover defaults and fraud resulting from the loans while a further £1.8bn has been claimed, without yet being settled.
More payments might be on the way with £3.2bn of the outstanding balance in arrears and £1.2bn having defaulted without being settled, according to figures from the British Business Bank.
Bounce-back loans made up the majority of the Covid-era loans, with £46.6bn of the £77bn total coming from the scheme. The other loans came from ‘business interruption’ schemes.
The UK’s bounce back scheme saw banks pay out zero interest loans of up to £50,000 to small and medium enterprises on a six-year basis.
While banks were praised for the speed at which they aided businesses, concerns have repeatedly been raised that bounce back loans were being used for criminal purposes.
Across the bounce-back loans, £1.1bn has been flagged by lenders as potential fraud.
The ratio of non-performing loans varied across different lenders, with some challenger banks reporting much higher ratios of non-performing Covid loans than others.
Over 40 per cent of the bounceback loans issued by Starling were non-performing with 5.9 per cent of the loans it issued thought to be suspected fraud.
Starling boss Anne Boden has previously vigorously refuted the claims that the bank failed to take appropriate measures when handing out bounce back loans. “Starling has done a fantastic job in making sure we did all the checks necessary and more,” Boden said in May last year.
Metro Bank reported 37 per cent of its bounce back loans were not performing, although only 0.5 per cent of its loans were flagged for fraud.
Metro Bank commented: “Proportionately, Metro Bank arrears and default rate represent six per cent of the total arrears and default rate across all lenders and we expect that number to further align with our contribution to the scheme as the portfolio matures.”
A spokesperson from Starling Bank commented: “At the time the scheme opened, Starling was a relatively new bank with new customers, many of whom were relatively ‘young’ businesses, which, by their nature, are more likely to struggle and fail. Starling also remained open for new business customers during this time, unlike many of the big banks who supported only (or primarily) their existing customers with established businesses. “