UK banks are reportedly developing a code of conduct for businesses who have defaulted on the coronavirus loans which are taxpayer-backed. According to industry estimates, around 8 out of 10 borrowers may not be able to repay the loans in full amount.
UK Finance and British Business Bank were reportedly in talks with the commercial lenders to form industry-wide debt collection standards ahead of repayments that are falling due. Loans that are granted under the BBLS (bounce-back loan scheme) & CBILS (coronavirus business interruption loan scheme) for small- and medium-sized businesses have been offered with a 12-month repayment-free period, which is expected to run out for the first batch in 2021 spring.
The BBLS has given a 100% government guarantee that the state will cover the losses of the banks during situations where the customers default their loans. Meanwhile, the CBILS also offers an 80% guarantee, which means the banks must accept 20% of the potential losses. However, the banks are expected attempt the recovery of the full amount from the customers prior to accessing the guarantee.
According to industry estimates, 40% to 80% of the businesses could reportedly default on the bounce-back loans. Nearly 10% to 15% of the total BBLS from this estimated rate is expected to be down to fraudulent applications.
In June 2020, a city task force had warned that nearly £36 billion worth of loans backed by the government are unlikely to be paid back by 2021, as various companies are facing an economic crisis due to the COVID-19 pandemic. As per sources, the British Bank and UK Finance, which manages various state-guaranteed loan schemes, have been conducting a series of meetings with several groups of banks. These meetings will continue to take place over the upcoming weeks.
People with knowledge of the matter have stated that there have been regular meetings held by the British Business Bank with HM Treasury, UK Finance, lenders, and others to have discussions on the government’s response to these loan guarantee schemes during the pandemic.
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