Lloyds CEO Plays Down Risk of Fraud in U.K. Virus Loan Program

(Bloomberg) -- Lloyds Banking Group Plc Chief Executive Officer Antonio Horta-Osorio played down the risk of costly fraud in emergency Covid-19 business loans, saying his bank has been cautious about taking on new borrowers.

“Focusing on our existing customers helped us to complete the very important ‘know your customer’ and anti-money laundering checks which applied to all applications,” Horta-Osorio told reporters Thursday after the lender reported third-quarter results.

Lloyds is one of the biggest issuers of Bounce Back loans, extending 8.4 billion pounds to small businesses with repayments guaranteed by the government. Firms have received 40 billion pounds of these loans so far, but some critics have pointed to loose eligibility criteria that left the program open to potential fraud.

Earlier this week a man was arrested in Hertfordshire, southern England, on suspicion of spending his loan on high value watches, according to the National Crime Agency. Action Fraud has said it’s received 176 reports relating to government-backed lending initiatives this year.

Read more on fraud risks in Covid loan programs

When asked whether Lloyds would make a profit on this program, Horta-Osorio said “the margin is significantly lower than the margin we have before, which is logical” given the state guarantee.

“There are significant costs of processing these loans, especially as they come to maturity and extension. This is what all banks negotiated with the government,” he said.

The U.K. Treasury launched Bounce Back loans in May, overruling internal concerns about fraud, after the banks agreed to reduce their interest rates on these debts to 2.5%. The National Audit Office has said the structure of the program “reduces the lenders’ incentives to recover money from borrowers.”

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