LONDON (UK) – Banks in Britain are trying to figure out whether borrowers owing some 75 billion pounds in home loans will be good for it when a payment holiday, which was introduced when the pandemic first hit, comes to an end.
Banks are scrutinising current account transactions, credit card spending and trends in Internet searches to get an idea of customer finances. This is part of an effort to extent of damage to their portfolios from the pandemic.
Old risk models have been upended by the shutdowns, government support and uncertain recovery path, forcing lending institutions to look for dynamic, forward-looking way of analysing lending risk.
Top British banks’ executives say assessing the hit to loans is the biggest risk management challenge they have ever experienced since the 2008 crisis.
“This time there is economic volatility beyond what we have ever seen, there is unprecedented government support, and to try and model it all with 100% accuracy is impossible,” said Matt Waymark, director of finance at NatWest Group.
As part of a series of efforts aimed at supporting households hit by the pandemic, the government granted 300 billion pounds in payment breaks and around 70-80% of those have resumed payments, bankers and analysts said.
That leaves close to $100 billion outstanding. This comes at a time when banks are staring at a wider defaults on their corporate loans and dipping income because of near-zero interest charges.
Ratings agency Moody’s said that a big default on that stock of home loans along with an expected spurt in defaults on corporate loans could trigger bad debts, rising from 1.4% of their books to 4.1% by 2022.