Over a million UK COVID loans are still unpaid, creating a challenge for banks

Uncertainty around the destiny of over a million loans that still need to be returned by borrowers or handled by the government has been intensified by Britain's decision to remove guarantees on a portion of emergency loans given to small businesses during the pandemic.

According to a Reuters story published on Wednesday, the UK government has eliminated guarantees on emergency pandemic loans totalling roughly £1 billion. Depending on the financing arrangement, these guarantees had covered between 80% and 100% of the loan's credit risk.

According to Reuters' analysis of publicly available government data, 1.1 million loans—or nearly half of the £47 billion in total monies awarded under the largest "Bounce Back Loan" (BBL) scheme—remain unpaid.

This implies that billions of pounds worth of loans are still unaccounted for, which could result in increasing expenses for the government or the banks that made the loans.

According to the most recent government data on BBLs, as of June 30, £2 billion were overdue, and £532 million had defaulted and were not yet the subject of claims. Lenders were waiting on a government judgement regarding the guarantee after submitting claims for loans totalling £1 billion.

At that point, the majority of the outstanding loan sums, totalling over £20 billion, were being paid back according to plan.

The "Big Four" British banks were the biggest issuers of BBLs, according to government data: Barclays (£10.8 billion), NatWest (£8.9 billion), Lloyds (£8.5 billion), and HSBC (£7.2 billion).

Santander, the Spanish bank's British branch, issued the fifth most, with £4.3 billion, followed in sixth place by digital bank Starling, which grew faster during the pandemic by using BBLs.

There is, however, little evidence to imply that these banks were particularly to guarantee deletions.

(Sources: investing.com, reuters.com)