By Iain Withers and Lawrence White
LONDON (Reuters) – Britain’s Big Four banks amassed more than £ 200bn ($ 277.52bn) in new deposits last year as customers curbed spending thanks to pandemic lockdowns, far exceeding additional loans to companies and households in difficulty.
Annual results released by HSBC, Barclays, Lloyds and NatWest last month revealed just how messed up lenders’ finances have been by the crisis.
Banks are now facing a savings glut, according to a Reuters analysis of bank results, with domestic customers of the four lenders depositing £ 221 billion in additional cash.
In contrast, despite the fact that banks have distributed billions of pounds of state-guaranteed financing to businesses since the start of the pandemic, their UK lending net growth overall was 53.4 billion pounds, or a quarter of the growth in deposits.
The more limited loan growth may be explained by a drop in appetite for certain loans, particularly consumer credit, where separate data from the Bank of England showed the British repaid $ 13.8 billion of books last year.
More deposits help shore up bank finances, but is not necessarily good news for lenders when central bank interest rates are near zero, making it difficult to make a profitable loan.
This explains the focus on wealth management in banks’ strategy updates last month, as they rush to earn more on fees to offset low lines of credit.
Banks have said they expect customer spending madness as Britain emerges from its latest lockdown in the coming months, which could somehow eat into the deposit pile.
Chart: UK deposits grew much faster than loans in 2020 https://graphics.reuters.com/BRITAIN-BANKS/bdwvknmzdpm/chart.png
The bulk of UK bank profits come from the difference between interest earned on loans and paid on deposits.
The consumer credit crunch has therefore severely affected lenders’ incomes, made worse by the fact that the Bank of England cut benchmark rates to an all-time low of 0.1%.
The double whammy is reflected in sharp declines in revenues for the two domestically focused banks – NatWest and Lloyds – where revenues fell 24% and 16% respectively last year.
The decline was more modest by 10% at HSBC, which benefited from a more international footprint and exposure to Asian markets which resisted better over the year.
Barclays completely reversed the trend, with overall revenues edging up 1% thanks to a bumper year for its investment bank in volatile markets caused by a pandemic that offset struggles in retail.
Chart: Reduced banking income, Barclays raised by commercial arm https://graphics.reuters.com/BRITAIN-BANKS/yxmvjxwbkvr/chart.png
The big unknown for banks remains the severity of the impact of the crisis on their loan portfolios, once government stimulus packages to support consumers and businesses are phased out.
The four banks have set aside nearly £ 19 billion in provisions between them for loans that are expected to deteriorate due to the crisis.
These provisions were largely introduced in 2020, with most being taken in the first half of the year, as lenders are required to pre-recognize under forward-looking accounting rules known as IFRS9.
Despite the scorching economic backdrop, provisions for the past two quarters have returned to pre-crisis levels in at least some of the banks – a reflection of the impact of ongoing government stimulus measures.
UK Finance Minister Rishi Sunak is expected to extend his support again on Wednesday when he presents his annual budget plan which is expected to rack up more borrowing in addition to nearly £ 300bn in COVID-19 spending and cuts. taxes.
Banks know that many delays are coming and it is not certain that their provision to date is sufficient.
Chart: Bad debt provisions have been preloaded in 2020 https://graphics.reuters.com/BRITAIN-BANKS/jznvnogxjpl/chart.png
Solving this conundrum will be key to reviving stock prices at UK banks, which have languished in recent years amid Brexit fears and near-constant restructuring that has weighed on earnings.
Optimism over vaccine rollouts has seen lender stocks climb back to pre-pandemic levels since the fall, but that still leaves them near 12-year lows.
Chart: Bank stocks since pandemic hit UK https://fingfx.thomsonreuters.com/gfx/mkt/jznvnogeqpl/Pasted%20image%201614596726521.png
(Reporting by Iain Withers and Lawrence White; Editing by Susan Fenton)