BoE asks banks to give estimates on Covid-19 loan losses

UK lenders have been asked to forecast expected loan losses from the coronavirus crisis, the Bank of England said on Thursday.

As banks prepared for a deluge of borrower defaults, BoE deputy governor Sam Woods, who is also chief executive of the Prudential Regulation Authority (PRA), said the PRA

wanted to gather together the information ahead of their half-year results.

“This information will enable us to identify any significant outliers and to further refine our estimates for future capital exercises,” Woods said in a letter to banks.

The UK faces its worst recession in 300 years as national lockdown shuttered businesses and in turn furloughed millions of employees. The central bank recently estimated loan losses in the sector could hit £80bn after it conducted a stress test of lenders' finances.

However, it assured last month that UK banks were strong enough to keep lending to households and businesses throughout the crisis despite the rising number of people struggling to meet debt repayments.

Woods repeated guidance that banks should not assume that payment holidays were in effect a default on a loan, and should therefore delay making overly-negative assumptions about their own bad debts.

Deputy governor for financial stability Jon Cunliffe said in a letter that he expected banks to “pay close attention” to the additional market risks from Covid-19.

Cunliffe told the institutions they needed permission before paying a dividend. “We would expect you to discuss with us in advance of making any distribution to shareholders,” he said.