Global banking institution Barclays has reserved an entire £3.7bn in preparation for potential loan losses due to the effects of Coronavirus on small, medium and large businesses.
The move is parallel to steps taken by competitor US banks all who’ve responded to the uncertain future by enormous reserves and stricter rules as borrowers struggle amid a pandemic.
When banks predict possible defaults in loan repayments, they reduce total givable loan caps and implement stricter rules to mitigate losses.
In its most recent financial plan, Barclays has reserved £1.6bn in preparation for any bad debts suffered in Q2 (from May to June) amid stringent Coronavirus restrictions.
Barclays announced an 8 percent uptick in first-half (H1) total income hitting £11.6bn, fueled by an 86 percent growth in revenue from trading operations. Still, setting aside a considerable amount to cover bad credit caused a 58 percent dip in profit before tax leading to proceeds worth £1.3bn.
The Barclays report read: “Our consumer business income decreased by 11% in Barclays UK and 21% in CC&P (consumer, cards and payments) as a result of the lower interest rate environment, fewer interest-earning balances, reduced payments activity and action to provide support for customers”.
The financial company processed more than 600,000 payments until the close of July and has disbursed £22bn in funding, including 250,000 government sponsored CBILS to the tune of £7.5bn.
According to Barclays’ CEO Jes Staley, though reserves remain well supplied and beyond minimum caps, the bank may suffer thorough capital challenges in the remaining half of the g.
“Still, our unique approach means we stay financially strong and will continue funding our clients and customers,” said Staley.
Barclays CET1 ratio, a primary measure of a banking institution’s balance sheet well-being, jumped to 14.2 percent at the close of H1 from 13.8 percent at the beginning of the year.
Barclays UK business loan disbursements have seen a 31.4% rise in H1. And though the UK authorities back most of the risks tied to these loans via multiple pandemic relief funds, it’s a red flag of the disaster microbusinesses face. Even larger enterprises that rely on Barclays have been seeking funding from the bank.
With many loans out there and the unforgiving financial environment, Barclays anticipates losses from small businesses and long-established corporate clients.
That also justifies the huge provision allocated to cover and losses due to bad debts.
Payment industry guru Taylor Cole is a passionate payments expert who understands the complex world of merchant accounts and helps retailers get the cheapest merchant services for small businesses. He also writes non-fiction, on subjects ranging from personal finance to stocks to cryptopay. He enjoys eating pie on his backyard porch, as should all right-thinking people.