To cover losses from the Covid loan scheme, UK banks spent £4.4bn of taxpayers’ cash

To cover fraud and default on the £77bn state-guaranteed loans given to struggling companies during the coronavirus lockdowns, more than £4.4bn worth of taxpayers’ money was paid to British banks.

According to the latest data, Tuesday’s official data showed that banks have flagged another £6.2 billion worth of problem loans. This suggests that taxpayers will face additional losses under the Covid-19 programs.

Banks flagged nearly £1.2bn in total loans as fraud. Smaller lenders like Conister Finance or New Wave Capital were highlighted as having a large portion of their loan books. After the March 2020 pandemic, the government imposed a lockdown and many small businesses were in danger of going bankrupt, ministers quickly set up loan support programs to assist them.

Most of the losses stem from the £46.6bn “bounce back” loan scheme, which allowed companies to borrow up to £50,000 without any checks. This made it susceptible to fraud. There was a state guarantee for all losses.

British Business Bank data showed that bounce-back lenders received the largest amount of taxpayer payments under the state guarantee. It totalled £4.1bn.

This included £640mn for loans with suspected fraud flags. Lenders had reported £1.1bn worth of bounce-back loans as suspect fraud. David Fleming (UK head of restructuring at Kroll) stated: “These numbers are large and given the economic headwinds, increasing interest rates, and other challenges we’re likely to see additional challenges.”

Around four-fifths have been repaid or are on schedule. 9 per cent are in arrears and default. The latest figures for all Covid loan programs showed that £14.5bn out of £77bn was repaid and £38bn was being serviced on time by borrowers.

Data also separated out bank losses and exposure. Barclays received £1.3bn (or close to 30%) of the total amount of taxpayer funds. According to the bank, it is “proud” to have provided funding of over £29bn for British companies.

Conister Finance only makes about one-third of the loans and New Wave Capital lends close to 40%. The British Business Bank has repaid the remainder of the loans that are in arrears or defaulted.

Conister Capital and New Wave Capital have accounted for more than 25% of all money taken out through them, as opposed to the average of 2.4% across all lenders.

Starling has repaid just over 55% of its loans on time. The latest data shows that just under 6 per cent of loans were flagged as fraud by the challenger banks.

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