By Lawrence White and Iain Withers
LONDON (Reuters) – As the repayment deadline approaches for more than Â£ 75bn ($ 104bn) in state-guaranteed emergency loans, UK banks must follow a delicate path with companies backed during the pandemic.
Faced with attempts to limit losses for themselves and for taxpayers, but also to avoid a repeat of the consequences of the 2008 financial crisis, when banks were vilified and forced to pay millions of pounds in reparation for Heavy debt repayment tactics, lenders promise that this time will be different.
With the first COVID loan repayments coming due, Britain’s four largest banks have hired more than 750 debt collection experts and training is being provided on how to handle customers sensitively.
âWe did a bootcamp training to make sure they are all ready to go,â said Hannah Bernard, head of corporate banking at Barclays.
As one of the first major markets to start collecting state-guaranteed loans against the pandemic, the world will be watching the plight of UK banks.
The government‘s first estimate was that losses on the most popular rebound loan program that allowed small businesses to borrow up to Â£ 50,000 with few questions asked – could go up to 60%, taking into account credit problems and fraud.
Although the loans are 100% or 80% guaranteed by the government – which limits the potential financial difficulties for the banks – they must make every effort to collect before the state pays and some bankers have said that these costs could mean they are making an overall loss on the scheme.
So far, senior bankers polled by Reuters have said outright fraud cases appear to be fewer than expected. There are also mechanisms for most borrowers to extend their payments, but evidence of disputes with borrowers is emerging.
Social media posts from disgruntled customers, interviews with small businesses and copies of letters sent by banks to customers and seen by Reuters show some borrowers are unhappy with their treatment.
“This will be a big test of the proportions of 2008,” said lawmaker and chairman of the All-Party Group for a Fair Merchant Bank, Kevin Hollinrake. “I am very concerned, because the warm words of the banksâ¦ from above have not always been reflected in actions on the surface of the coal.”
A National Health Service doctor, who took out a bounce-back loan for a private practice, told Reuters after checking a box on an HSBC form asking if he was in financial difficulty, he was dismayed to see the extension hoped for declined and the bank immediately took full payment.
HSBC said it tried to contact the customer three times through different channels and its online forms made it clear that ticking the box would automatically exclude a postponement.
Other bank customers saw the full loan amount of Â£ 50,000 requested within 14 days and were told they had made errors in the application or were never eligible, according to copies of letters which were sent to them and reviewed by Reuters.
Bankers said rough handling and requests for immediate reimbursement would only occur in cases of suspected fraud. They do not want to risk undoing the impression that British banks have had a “good crisis”.
On a first wave of around 60,000 matured rebound loans at NatWest, only a single-digit percentage failed the first payment, said Andrew Harrison, acting head of corporate banking.
Still, cutting hundreds of bank branches in recent years won’t help resolve any disputes, business leaders said.
âAs more and more businesses start to struggle this is the time when the bank should be the right advisor and I don’t think businesses view them that way, everything was done by algorithms so there is no relationship, âsaid Richard Burge, chief executive of the London Chamber of Commerce.
Perhaps the real pain is yet to come.
“We should not underestimate the high and continued level of government support, and once it is extinguished the question is how many businesses can really survive,” said Harrison of NatWest.
The bank, which renamed its âdebt management operationsâ unit âfinancial health and support,â hired an additional 150 employees for debt collection, he said, and used behavioral science techniques. to better understand customers’ reading skills and eliminate jargon.
HSBC has also hired around 200 additional staff and trained them to empathize with customers, said Amanda Murphy, head of the lender’s commercial banking.
“What we’re better at now, and it’s not just banks, but I think society is to better understand vulnerability, people’s stress, and the connection between work and personal life.” , she said.
âIf someone says ‘I’m at my end of the line’ it’s not just a phrase,â Murphy said.
Staff have been trained on how to handle and refer such cases to specialist teams, as well as educate clients about independent third-party resources, she said.
With the collapse of an industry-wide collection agency’s plans, banks will face a rigorous scrutiny of how they collect loans and, in some cases, how much they charge. .
Most of the loans have been made at low interest rates, making debt servicing relatively easy for businesses – including bounce loans set at 2.5% – but a significant portion has been granted in under other programs without a fixed price.
More than Â£ 3 billion in funds for nearly 17,000 businesses have been billed at double-digit interest rates, according to figures obtained in an access to information request by the anonymous activist of the small business, Mr. Bounce Back.
These higher rates were mainly charged by non-bank lenders unable to benefit from the cheap financing of the Bank of England.
Business bank account provider Tide recently told small businesses it won’t offer deferral on bounce loans because it can’t afford it, Reuters reported.
âWe really wanted to help and are as disappointed as anyone,â said Oliver Prill, CEO of Tide, who urged the BoE to open up its cheap funding to non-banks.
As the industry has been largely successful in getting cash fast for businesses that need it, the challenge now is to avoid undoing all that good work throughout the collection process.
âNo bank wants the reputation the industry had 13 years ago, no one wants that,â said Murphy of HSBC.
(Reporting by Lawrence White and Iain Withers, editing by Rachel Armstrong and Elaine Hardcastle)