Lloyds dives into red and says £5.5bn in loans could go bad


Lloyds dives into red as it warns of pandemic’s ‘profound’ impact on economy and says up to £5.5bn in loans could go bad

Lloyds Banking Group dived into the red as it warned of the pandemic’s ‘profound’ impact on the economy and said up to £5.5billion in loans could go bad. 

The High Street lender said it had put aside a further £2.4billion in preparation for customers defaults, adding to £1.4billion it stockpiled earlier this year. 

And Lloyds said total provisions for the year could rise to between £4.5billion and £5.5billion, up to £1.7billion more than current levels, after warning that virus lockdown measures dealt a ‘larger than expected’ hit to the economy. With the cost of the virus mounting, the bank reported a £676m loss for the second quarter, down from a £1.3bn profit a year earlier. 

Reeling: Lloyds, headed by Antonio Horta-Osorio,  said total provisions for the year could rise to between £4.5billion and £5.5billion

Reeling: Lloyds, headed by Antonio Horta-Osorio,  said total provisions for the year could rise to between £4.5billion and £5.5billion

Rival Standard Chartered also lifted its provisions for bad debts to £1.2billion, up from £733m previously, just a day after Barclays and Santander revealed they had now put aside a combined £10billion. 

Further grim numbers are expected from state-owned Natwest, formerly known as Royal Bank of Scotland, today. 

Lloyds chief executive Antonio Horta-Osorio said: ‘The impact of the coronavirus pandemic in the first half of 2020 has been profound on the way we live our lives and on the global economy. We remain fully focused on helping our customers and the UK economy recover, in collaboration with the Government and our regulators.’ 

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Under tough accounting rules introduced after the financial crisis, banks are required to set aside cash for loans that could end up going bad. And as coronavirus has wreaked havoc on the global economy, major lenders have stashed increasingly large sums away in preparation for the deep recession that has followed. 

Of the provision revealed by Lloyds, a big slice was in preparation for mortgage loans it fears could go bad. The bank said it had set aside £603m in the first half of 2020, blaming ‘the additional reduction in house price forecasts’. It also stashed £656m in anticipation of people falling into arrears with credit card payments, as well as £241m for car financing deals that could turn sour.

In a bleak sign for the economy, the bank said its ‘base case’ assumes that unemployment in Britain will soar from the current rate of 3.9 per cent to 9 per cent in the final three months of the year, when the Government’s furlough scheme is due to end. 

In its worst-case scenario, Lloyds said GDP could drop by 17.2 per cent this year and unemployment could peak at 12.5 per cent in the second quarter of 2021 – even higher than the 12 per cent peak during the 1980s. It said the road ahead remained ‘highly uncertain’.

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