British Banks Denied Covid Loans to Over 150,000 Companies
British banks turned down more than 150,000 applications for government-guaranteed business loans during the Covid-19 outbreak in an effort to prevent fraud, according to the industry watchdog.
The Financial Conduct Authority told lenders not to relax their checks on potential borrowers when they offered credit under the Coronavirus Business Interruption Loan and Bounce Back Loan programs, according to Chief Executive Officer Nikhil Rathi.
“Our understanding is that approximately 14% of CBILS loans were denied because of concerns around diligence and 8% of BBLS loans upon first application,” Rathi told a virtual session with a U.K. parliament committee on Wednesday.
Separate British Business Bank data submitted to parliament and published on Thursday shows that lenders had prevented more than 1.1 billion pounds ($1.4 billion) of suspected fraudulent Bounce Back loans by mid-October.
The programs, intended to fund smaller companies, have received more than 1.6 million applications since their introduction in May. Bounce Back loans have proved most popular, with companies receiving about 40 billion pounds so far, but some critics have pointed to loose eligibility criteria that left lenders open to potential fraud.
The initiative was launched “at great speed” to meet the need for corporate funding after the country went into lockdown, said Rathi, who took over as head of the FCA in October. The regulator made it clear that “banks must maintain relevant systems” especially when taking on new customers, he said.
Bosses at Lloyds Banking Group Plc and NatWest Group Plc said last week they were cautious about taking on new borrowers.
The Treasury, banks and FCA are discussing how these loans will be repaid, or else backstopped by the state, said Rathi. “Instinctively we want to avoid small firms getting into harm’s way with early debt recoveries,” he said, adding a decision would be taken in the coming months. The FCA is “in dialogue” with banks around the risk of fraud, he said.
“Banks are well aware that they don’t want a repeat of what happened after the last financial crisis. Hopefully collaboratively we can make sure that won’t happen,” Rathi said.
©2020 Bloomberg L.P.