The UK banking industry has the potential to withstand the impact of the Covid-19 pandemic because of its financial strength. This is despite the Bank of England’s projecting credit losses of nearly $99 billion as part of its latest stress test, media reports said.
Fitch in its report titled Large UK Banks’ 1Q20 Credit Losses Surge Under Wide Rane of Assumptions observed that the country’s five largest banks raised GBP7 billion of expected credit losses during the first quarter of 2020. The raised amount is higher than GBP6.1 billion for the whole of 2019.
It is reported that the UK banks will consume 45 percent of the banking system’s available capital buffers but would continue to operate and provide lending as usual.
According to the Bank of England, the UK is facing its harshest recession in 300 years. In fact, the central bank estimates that the GDP will dive by 25 percent this quarter. Also, unemployment is anticipated to reach 9 percent on the back of suspended economic activities.
In fact, the central bank has warned that the UK economy could shrink by 14 percent in 2020. The Bank of England Governor Andrew Bailey, told the media, “The scale of the shock and the measures necessary to protect public health means a significant loss of economic output has been inevitable in the near term.”
The UK banks are expected to increase lending by £55 billion backed by government-aided guarantees during the pandemic, media reports said.“It is in the collective interest of the banking system to continue to support businesses and households through this period,” he said.