By Lawrence White and Ian Withers
LONDON, 6 July. (Reuters) – As the payback period of more than £ 75bn ($ 104bn) in government-backed emergency loans approaches, UK banks must take the delicate path of supporting businesses during the pandemic.
Faced with attempts to limit losses for themselves and taxpayers, and avoid a repeat of the 2008 financial crisis, when banks were criticized and forced to pay millions of pounds in compensation for tough debt repayment tactics, creditors promise that this time will be different.
As the first COVID loan is now due to mature, four of the UK’s largest banks have hired over 750 debt collection experts and training is underway on how to handle clients with care.
“We ran a training course to make sure they were all ready to go,” said Hannah Bernard, head of business banking at Barclays.
As one of the first major markets to collect government-backed loans in the wake of the pandemic, the world will be watching the plight of British banks.
According to preliminary government estimates, losses on the most popular payback scheme, which allowed small businesses to borrow up to £ 50,000 with a few questions, could be up to 60%, taking into account credit problems and fraud.
Although loans are guaranteed by the government at 100% or 80%, which limits potential financial hardship for banks, they must do their best to obtain them before the government pays off, and some bankers have said that these costs could mean that they will suffer general losses. for banks. scheme.
So far, senior bankers interviewed by Reuters say there are fewer outright fraud cases than expected. There are also schemes that allow most borrowers to renew payments, but there is evidence of disputes with borrowers.
Social media posts from dissatisfied clients, interviews with small businesses and copies of letters sent by banks to clients and reviewed by Reuters show that some borrowers are unhappy with their attitude.
“This will be a big test on a 2008 scale,” said Kevin Hollinrajk, MP and chairman of the Fair Banking Party-wide group. “I am very worried because warm words from the banks … from above are not always reflected by actions at the bottom.”
One National Health Service doctor who took out a loan repayments for a private practice told Reuters after he ticked the HSBC form asking if he was in financial difficulties, he was dismayed to see the long-awaited extension was turned down. and the bank immediately accepted the full payment.
HSBC said it tried three times to contact the customer through different channels, and that its online forms clearly state that ticking the box will automatically exclude deferment.
Other bank clients were asked for the full loan amount of £ 50,000 within 14 days and were told that they had made mistakes in their application or were not eligible at all, according to copies of letters sent to them and verified by Reuters.
The bankers said that harsh treatment and demand for immediate repayment will only occur if fraud is suspected. They do not want to risk destroying the notion that British banks are having a “good crisis.”
Of the initial wave of about 60,000 repayable loans to be repaid at NatWest, out of an initial wave of about 60,000 repayable loans to be paid off at NatWest, only a single-digit percentage did not go through the first installment, according to Andrew Harrison, interim head of banking business Andrew Harrison.
However, business executives said removing hundreds of bank branches in recent years will not help resolve disputes.
“As more and more firms start fighting, there comes a point where the bank has to be a reliable advisor, and I don’t think companies look at them that way, it was all done with algorithms, so there is no relationship.” said Richard Burge. executive director of the London Chamber of Commerce.
The real pain may still lie ahead.
“We should not underestimate the continued high level of government support, and once it is cut off, the question is how many businesses can actually survive,” said NatWest’s Harrison.
The bank, which renamed its debt management division “financial health and support,” hired an additional 150 debt collection officers and used behavioral science techniques to better understand clients’ reading skills and get rid of jargon, he said.
HSBC also hired about 200 additional employees and taught them to empathize with clients, said Amanda Murphy, head of commercial banking for the lender.
“What we are doing better now is not just banks, but I think society understands more the vulnerability, the stresses that people experience, and the connection between business and personal life,” she said.
“If someone tells you, ‘My leash is over,’ it’s not just a phrase,” Murphy said.
Staff are trained on how to handle such cases and refer them to specialist teams, as well as inform clients about independent third-party resources, she said.
As plans to create an industry-wide collection body have collapsed, banks will face criticism of how they collect loans, and in some cases how much they charge.
Most of the loans were made at low interest rates, which made debt servicing relatively easy for firms, including loans with a fixed rate of 2.5%, but a significant portion of the loans were made under other schemes without a fixed price.
More than £ 3 billion has been written off at double-digit interest rates for nearly 17,000 businesses, according to data obtained as part of a freedom of information request by anonymous small business campaigner Bounce Back.
These higher rates were mostly levied by non-bank lenders who were unable to take advantage of cheap Bank of England financing.
Reuters reported that business bank account provider Tide recently told small business clients that it would not provide deferrals for repayable loans because it cannot afford it.
“We really wanted to help and were disappointed like no other,” said Oliver Prill, CEO of Tide, who has called on the Bank of England to open its cheap financing to non-banks.
Since the industry has largely managed to get money quickly for businesses that needed it, the problem now is is an to avoid canceling all this good work in the collection process.
“No bank needs the reputation the industry had 13 years ago, no one needs it,” said Murphy of HSBC.
(Reporting by Lawrence White and Ian Withers, editing by Rachel Armstrong and Elaine Hardcastle)
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