A pedestrian passes a Barclays bank branch in Chelmsford, the UK, February 11 2021. Picture: CHRIS RATCLIFFE/BLOOMBERG
A pedestrian passes a Barclays bank branch in Chelmsford, the UK, February 11 2021. Picture: CHRIS RATCLIFFE/BLOOMBERG

London — As payback time approaches for more than £75bn of emergency state-backed loans, Britain’s banks must tread a delicate path with businesses propped up during the pandemic.

Faced with trying to limit losses for themselves and taxpayers but also avoid a repeat of the aftermath of the 2008 financial crisis, when banks were vilified and forced to pay millions of pounds in redress for heavy-handed debt-collection tactics, lenders are pledging that this time will be different.

With the first Covid-19 loan repayments now falling due, Britain’s four biggest banks have hired more than 750 debt-collection experts between them. Training is being given on how to handle customers sensitively.

“We did boot camp training to make sure they’re all ready to go,” said Hannah Bernard, head of business banking at Barclays.

As one of the first major markets to begin collecting state-backed loans from the pandemic, the world will be watching how Britain’s banks fare.

The government’s early estimate was that losses on the most popular bounceback loan scheme, which enabled small businesses to borrow up to £50,000 with few questions asked, could be up to 60%, taking into account credit problems and fraud.

While the loans are either 100% or 80% guaranteed by the government — limiting the potential financial pain for banks — they must make all efforts to collect before the state pays up and some bankers said those costs could mean they make an overall loss on the scheme.

So far, senior bankers said cases of outright fraud seem to be lower than expected. There are also schemes allowing most borrowers to extend payments, but evidence of disputes with borrowers are emerging.

I’m very concerned, as warm words from the banks … from the top haven’t always been mirrored by actions at the coalface
Kevin Hollinrake, chair of the all-party group for fair business banking 

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 2008 proportions,” said Kevin Hollinrake, legislator and chair of the all-party group for fair business banking. “I’m very concerned as warm words from the banks … from the top haven’t always been mirrored by actions at the coalface.”

One National Health Service doctor, who took out a bounceback loan for a private practice, said that after he ticked a box on an HSBC form asking if he was experiencing financial hardship he was dismayed to see the hoped-for extension declined and the bank immediately took full payment.

HSBC said it had tried to contact the customer three times through various channels, and that its online forms made it clear that ticking the box would automatically exclude a deferral.

Other bank customers have had the full £50,000 loan amount demanded back within 14 days and been told they made mistakes in the application or were not eligible in the first place, according to copies of letters sent to them and reviewed by Reuters.

Bankers said abrupt treatment and demands for immediate repayment would  happen only in cases of suspected fraud. They do not want to risk undoing the perception of Britain’s banks having had a “good crisis”.

Out of an initial wave of about 60,000 bounceback loans that have come due for repayment at NatWest, only a single-digit percentage have failed the first payment, said Andrew Harrison, interim head of business banking.

No relationships

Yet the removal of hundreds of bank branches in recent years will not help in any dispute resolution, business leaders said.

“As more firms start to struggle this is the moment when the bank should be the sound adviser and I don’t think businesses look at them that way, it was all done by algorithms, so there are no relationships,” said Richard Burge, CEO of the London Chamber of Commerce.

The real pain may be yet to come.

“We shouldn’t underestimate the continued high level of government support, and after it is turned off the question is how many businesses can really survive,” NatWest’s Harrison said.

The bank, which has renamed its “debt-management operations” unit “financial health and support”, has hired an extra 150 debt-collection staff, he said, and used behavioural science techniques to understand the reading abilities of customers better and strip out jargon.

HSBC has likewise hired about 200 extra staff and trained them to empathise with customers, said the lender’s head of commercial banking, Amanda Murphy.

“What we are better at now, and it’s not just banks but I think society, is understanding more about vulnerability, the stresses people have and the connection between one’s business and personal life,” she said.

“If someone is telling you ‘I’ve come to the end of my tether’, that’s not just a phrase,” Murphy said.

Face scrutiny

Staff have been trained on how to handle and refer such cases to specialist teams, as well as making customers aware of independent third-party resources, she said.

With plans for an industry-wide collections body having collapsed, banks will face scrutiny on how they collect loans, and in some cases how much they charged.

Most loans were awarded at low interest rates, making debt relatively easy for firms to service — including bounceback loans fixed at 2.5% — but a significant chunk was granted under other schemes with no fixed price.

More than £3bn in funds for nearly 17,000 businesses were charged at double-digit interest rates, according to figures obtained under a freedom-of-information request by anonymous small business campaigner Mr Bounce Back.

These higher rates were mainly charged by nonbank lenders unable to benefit from cheap Bank of England funding.

Business banking account provider Tide told small business customers recently it would not provide payment deferrals on bounceback loans as it could not afford to. 

“We really wanted to help and are as disappointed as anyone,” said Oliver Prill, CEO of Tide, who urged the BoE to open up its cheap funding to nonbanks.

As the industry largely succeeded in getting money quickly to businesses that needed it, the challenge now is to avoid undoing all that good work through the collections process.

“No bank wants the reputation that the industry had 13 years ago, no one wants that,” said HSBC’s Murphy.



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