Bankers must be ready to help households and businesses through the future | business news

With so much fog surrounding the outlook for the UK economy, the earnings statements from the country’s main commercial banks this week provided an ideal opportunity to understand things as the big lenders tend to have a good idea of ​​what’s happening on the ground.

The overall picture painted – and this is a big generalization – is one in which UK households and businesses are becoming more cautious about the outlook for themselves and for the broader economy, but in most cases are not yet suffering from financial difficulties.

This was confirmed by relatively modest bank write-downs this week in anticipation of a worsening of the economy.

Lloyds Banking Group, Britain’s largest provider of mortgages, checking and savings accounts, took £377m in impairment in the first six months of the pandemic.

Santander, the UK’s third largest mortgage lender, also took £118m in loan write-downs over the period due to a deteriorating economic outlook.

Barclays, owner of the UK’s largest credit card issuer Barclaycard, meanwhile, has set aside the relatively small sum of £48million for its UK operation, noting that only a small number of loans have defaulted so far, “UK employment data has improved and there has been reduced uncertainty.” on the potential impact of COVID-19, offset by increasing concerns about customers’ vulnerability to high inflation.”

Meanwhile, NatWest, Britain’s largest small business lender, has released around £46million in provisions for bad loans.

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“We don’t see an increase in defaults, but people are concerned”

NatWest Chief Executive Alison Rose told Sky News today: “What we are seeing at the moment is no sign of stress from our customers.

“We’re watching it very closely, both households and families and businesses, and there are good cash buffers, people are very resilient – but we know there are tough times ahead.”


The word resilience has come up a few times this week. Lloyds chief executive Charlie Nunn repeatedly pointed to the resilience of the bank’s customer base during his call with City analysts on Wednesday.

And Coimbatore Sundararajan Venkatakrishnan, Barclays’ new CEO, also spoke of a robust performance on Thursday.

He told analysts: “We continue to monitor customer and customer behavior very carefully.

“In order to spot early warning signs, we have yet to see any worrying indicators amid rising concerns about an affordability crisis – and payment rates remain high as customers have reacted rationally to the economic environment.

“As a result, local currency card balances in both the UK and US have fallen to pre-pandemic levels, although the latter has started to grow again this quarter, and we believe the quality of these books is higher than before the pandemic .”

So far, so good.

But these results only tell the reader what happened in the first half of the year. The question is what happens for the rest of the year.

“We remain vigilant for signs of weakness”

Here the bankers’ crystal balls are a bit clouded at times, but it is noticeable that none of them seem to expect a recession in the UK in the second half of the year, rather a slowdown in growth.

Mr Venkatakrishnan said: “A change is expected in the real economy that we have not yet seen.

This was also noted by Mr Nunn, who said that while customers were adjusting their spending, it was having the effect of improving their financial resilience.

Mr Nunn, who reminded his audience that Lloyds customers are on average wealthier than most Britons, added: “It is worth noting that on average customers are entering this period in better shape than they did before the pandemic as they have their savings pots have increased and reduced their debt.”

“We see growth, but slower growth”

The fact that many households are using the savings they had to build up during the pandemic — put at $195 billion by the Office for National Statistics — is how they can respond to a sharp slowdown.

Likewise, the very low unemployment rate and the record level of job vacancies in the economy.

Ms Rose said: “We continue to see growth, but slower growth. This post-pandemic recovery is really what we’ve seen in terms of a strong recovery now, but given the headwinds ahead, we definitely forecast slower growth.

“We have a very interesting dynamic in the UK – very high employment and very high vacancies which underpins the resilience of the economy. But slower growth moving forward as people deal with the challenges of economic uncertainty. We think it’s slower growth as we move forward.”

She said a sign that things are getting worse is an increase in calls from customers to the call centers or indicators of weaker spending by households or businesses.

That doesn’t mean the country’s top bankers are ruling out a recession next year.

Santander UK published an intriguing chart outlining five different scenarios for the economy, one of which – to which it applies a 20% probability – will contract by 3.3% over the next year, including the conditions that underlie such Situation likely to result in a weaker environment for business investment due to political uncertainty, new strains of COVID-19 and greater than expected negative impact of the trade deal with the EU due to ongoing tensions surrounding UK and Northern Ireland border controls.

Notably, in four of these five scenarios, Santander UK expects house price inflation to turn negative in 2023, but not before.

“Soft landing” for real estate prices

Mike Regnier, Chief Executive of Santander UK, told Sky News: “Most of our scenarios are that in our baseline scenario, where we have a 40% weighting, we don’t expect house prices to fall, but land softly to the end of the year.”

The overall picture is therefore one of cautious optimism. The outlook for the UK economy as a whole is that activity is likely to slow – but a recession is viewed as largely unlikely this year – while households, armed with the savings cushion built up during the pandemic, are hunching their horns in anticipation above all due to higher energy costs.

However, Vladimir Putin’s war in Ukraine has made life more predictable than ever, as has the possibility of further COVID outbreaks and further clashes with the EU over Northern Ireland.

Bankers must do everything they can to help households and businesses through these troubling conditions.

The good news seems to be that they believe their own balance sheets are strong enough to do this.

Bankers must be ready to help households and businesses through the future | business news

Source link Bankers must be ready to help households and businesses through the future | business news

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