Up to 80 Percent Bounce Back Loan Defaults Expected

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June 25th 2022
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Up to 80 Percent Bounce Back Loan Defaults Expected

Banks expecting high default rate are drawing up collection plans.

The UK banking industry is putting together plans on how to recover loans from businesses issued emergency funding during the pandemic, such as bounce back loans and other business interruption loan schemes.

Deep within the UK banks, actuaries are forecasting a 40 to 80 percent default rate. This is obviously far higher than any usual lending and due to the unique circumstances under which the loans were assessed, along with the country's economic recovery, was expected.

The first payments on repaying a bounce back loan begin 12-months after the loan provided. The scheme started in May so first repayments are expected around May/June 2021.

Banks are protected by government guarantees, especially in the case of the BBL where a 100% guarantee has been provided. A 'light-touch' approach is expected when it comes to how aggressively debt collection procedures from banks are implemented.

The government has already provided HMRC with powers to pursue grants and whether these could be used to investigate loans once guarantees have been paid to banks is unknown.

The OBR forecast on pandemic costs showed the money allocated for guarantee payouts on write-offs on these emergency loans to be £5 billion for the 2020-2021 fiscal period.

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