MPs have grilled UK banks over whether their IT systems can cope with the surge in demand for the government’s new bounce back loan scheme (BBLS) and warned that sluggish lenders will be put under the spotlight.
In the latest Treasury Select Committee ‘virtual’ meeting on the economic impact of coronavirus, MPs said they would be looking closely at lending data and drawing attention to those that are too slow to process loans for businesses during the Covid-19 pandemic.
Banking leaders giving evidence to the Committee’s latest meeting – on Monday 4 May – included Anne Boden, CEO of Starling Bank; Amanda Murphy, head of commercial banking UK, HSBC; Paul Thwaite, CEO of commercial banking, Royal Bank of Scotland; David Oldfield, group director and CEO of commercial banking, Lloyds Banking Group and Matt Hammerstein, CEO, Barclays Bank UK.
The meeting focused on how businesses are being supporting financially, with the committee chair MP Mel Stride warning banks of the ‘absolutely critical role’ that they play in this ‘extraordinary, dreadful crisis’, particularly in terms of getting the money out across all the various schemes.
Demand for BBLS
The BBLS launched on Monday and received 79,500 applications by the afternoon. MPs said they were concerned by reports that systems could not handle such high demand.
Anne Boden, chief executive of Starling Bank, told the committee that bank IT systems were already ‘coming under strain’ because of the number of applications.
“I can’t talk for the big banks but looking on from an outsider, the big banks are really struggling to put all the processes in place to make this happen quickly. My greater concern at the moment is that the processes within all the banks won’t take the strain of what’s happening to process all these loans and bounce backs that quickly. I think there’s going to be a scale problem here and I think we need to focus on what we are going to do if we have to prioritise and what do we have to do if not everybody can get the loan they want.”
David Oldfield, chief executive of commercial banking for Lloyds Banking Group, said that it saw around 2,000 applications in the first two hours of being open but believes banks could approve BBLs for existing customers quickly.
“Unlike the coronavirus business interruption loan scheme (CBILS), the obligation is not on the bank to undertake viability and affordability testing.”
Paul Thwaite, CEO of commercial banking for Royal Bank of Scotland, said it has bolstered its resources to cope with the BBLS.
“We launched the bounce back loan scheme on Monday and worked very hard to make that available. It is very difficult to judge what the level of demand would be, but we’ve assumed there would be significant demands to the extent that we’ve increased our resources by about 50 per cent in the contact centres and areas that we expect to receive enquiries.”
Matt Hammerstein, CEO, Barclays Bank, said it was expecting significant demand for the BBLS.
“We had 200 applications within the first minute of going live and within minutes, all 200 of those application were fully approved and we’d expect the cash to be with those clients over the course of the next 24 hours. Since then, we’ve seen applications at a rate about 35 per minute. We are fully ready to make sure this scheme is a success.”
Amanda Murphy, head of commercial banking UK, HSBC, said it was not anticipating any problems but wanted to highlight the ‘importance of communication with clients’.
She said: “We believe that the bounce back scheme fulfils a really important part for a number of clients. One of the areas I would bring to the committee’s attention is the importance of communication with clients. Are they fully understanding what’s entailed in the scheme and that it is a loan and it’s not a grant? That’s been an element of confusion for many companies out there.”
Criteria for loans
MPs asked banks to explain how they assess the viability of small businesses for the purpose of making a loan.
David Oldfield, chief executive of commercial banking for Lloyds Banking Group.
“We’re agreeing around 8 out of 10 applications currently, so there aren’t many that we’re finding who aren’t able to afford it. Inevitably, there are some firms who didn’t have a viable business model and were struggling financially before Covid-19 and those ones, of course, are very difficult for us to get through as a responsible lender.”
Matt Hammerstein, CEO, Barclays Bank, said: “All participating lenders take a backward looking view on viability and have done that from the beginning of the scheme inception on affordability. Under our regulatory obligations, banks would look forward at affordability because you want to understand how the business is going to perform looking forward. Clearly, that’s very difficult to do. So the scheme rules were amended last week and those regulatory obligations to supply to enable banks to continue to make credit decisions to test affordability solely on a backward looking basis as well.”
MPs addressed reports that some banks are refusing to lend to some sectors entirely, including hospitality and real estate.
Paul Thwaite, CEO of commercial banking for Royal Bank of Scotland, said: “So the simple answer is that there’s no exclusions on sectors. We recognise that we want to support as many customers as possible. We recognise the leisure sector, the retail sector, the hospitality sector and over half the applications we’ve had are from those three sectors.”
Anne Boden, chief executive of Starling Bank, said: “It is very, very important that we don’t leave certain customers behind and you’ve mentioned the hospitality industry. We have 80 per cent of customers banking with the big banks, but 20 per cent don’t. And if big banks actually prioritise their own customers, we need to look after those that actually bank elsewhere.”
Matt Hammerstein, CEO, Barclays Bank, said: “We are certainly supporting hospitality businesses up and down the country. The scheme rules ask us to be anticipating lenders to apply our existing normal lending practices and outside of those. Therefore, we won’t lend to real estate within CBILS because we don’t have that credit risk appetite and under normal circumstances to do that and therefore the right expertise to be able to do it.”
Amanda Murphy, head of commercial banking UK, HSBC, said the bank has no industry sector restrictions but expanded on those who have had loans rejected.
“We’ve declined 129 CBILS applications, about three per cent in total. Every single CBILS decline comes to me personally for sign-off.”
During the latest Committee, the banking leaders were also quizzed on the issue of fraud protection when approving loans and how it was handling holiday chargebacks.
You can watch the whole session online here….