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01 May 2020

Banking Hazard: UK’s Top Five Banks’ Profits Slide

Saul Fulda, Investment Analyst

Britain’s top five banks seem to be suffering the wrath of the public once more. Sitting at the crux of the government’s coronavirus business interruption loans (CBIL), the banking sector is playing an integral role in supporting and stabilising the British economy by endorsing businesses in desperate need of fiscal support. 

However, the banks seem to be unable to win. Earlier this week they were lambasted for erecting unnecessary barriers to companies seeking emergency loans and industry leaders are calling for businesses to be fast-tracked to help them survive. 

On the other side of the coin, simplifying and accelerating the application process for state support will inevitably lead to an onslaught of bad loans and frauds; that nine in ten start-ups fail should play on taxpayers’ minds before offering sweeping support. 

The banking system should provide support where needed, but irresponsibly handing out cash is the start of a downward spiral festooned with regret and unrepayable debts while adding to the concept of moral hazard, where individuals and businesses can behave recklessly knowing that others will come to their rescue. 

Moreover, following first-quarter reporting, the big five UK banks are not in a position to fire up their fiscal engines. Lloyds’ profits dropped by 95% and the bank has already established a £1.4bn facility for bad debts; the respective figures for Standard Chartered were 28% and US$956m while Barclays saw profits slide by 38%, with £2.12bn set aside for loans.

Britain’s biggest bank HSBC failed to dodge the bullet, with profits down 48% and US$3bn designated for customer debts. Profits at Royal Bank of Scotland are down 59% year-on-year and the bank has put aside £802m for expected defaults. The negative impact on the balance sheets has already emerged. 

The banking system and regulator must come together to prudently assist British commerce. Throwing around money may sound like the saving grace needed, but it will be taxpayers who will be hit hardest in the decades to come. 
Banking Hazard: UK’s Top Five Banks’ Profits Slide
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