UK banks should use divi cash to write off customer debt - AJ Bell

British banks should use the £7.5bn saved in scrapped dividends and bonuses to write off debt repayments for customers affected by the coronavirus, investment platform AJ Bell said on Wednesday.

The industry regulator on Tuesday pressured the banks to cancel dividends and stop any buyback plans, while the Bank of England (BoE) ordered executive bonuses to be shelved in a push to make sure they had enough cash to lend to struggling businesses and households.

In coordinated statements lenders including Barclays, HSBC, Lloyds, Royal Bank of Scotland and Standard Chartered agreed to stop payouts for 2019 and this year. Banks were also warned last week to keep the financial taps open and make sure there was no barrier to lending.

AJ Bell chief investment officer Kevin Doran said the money would “go a long way to providing debt relief for the individuals and businesses that will be unable to make interest payments over the next three to six months”.

“Now would be the ideal time to repay the British public for the bailout the banks received during the (2008) financial crisis by writing of debt repayments for a period of time for those most affected by the Covid-19 crisis,” Doran said.

UK businesses are struggling after the government ordered a lockdown earlier this month for all but essential shops such as supermarkets and pharmacists.

Finance Minister Rishi Sunak last month launched a £350bn stimulus and package of loans and grants along with billions in wage support in an attempt to stave off company collapses, mass unemployment and a deep recession.

“The gross revenue generated by the UK banking sector from interest paid on debt by consumers and companies is around £28bn per quarter on a total loan balance of around £1.9trln," Doran said.

He argued that even if the entire £56bn of interest income for six months was written off it would represent a provision against the loan book of just 3%.

“The alternative of seeing some businesses collapse would surely entail far greater losses on the loan books,” he said.

Insurers, which face billions in claims, were also put on notice by the BoE over any intentions to pay dividends or bonuses to senior staff.

“We expect them to pay close attention to the need to protect policyholders and maintain safety and soundness, and in so doing to ensure that their firm can play its full part in supporting the real economy throughout the economic disruption arising from Covid-19,” the BoE said a separate letter.