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* Over $100 billion of state-backed loans coming due
* Burned by 2008, Britain's banks hope to burnish
reputations
* Some small firms complain of abrupt repayment demands
By Lawrence White and Iain Withers
LONDON, July 6 (Reuters) - As payback time approaches for
more than 75 billion pounds ($104 billion) of emergency
state-backed loans, Britain's banks must tread a delicate path
with businesses propped up during the pandemic.
Faced with trying to limit losses for themselves and
taxpayers but also avoid a repeat of the aftermath of the 2008
financial crisis, when banks were vilified and forced to pay
millions of pounds in redress for heavy handed debt repayment
tactics, lenders are pledging that this time will be different.
With the first COVID loan repayments now falling due,
Britain's four biggest banks have hired more than 750 debt
collection experts between them and training is being given on
how to handle customers sensitively.
"We did bootcamp training to make sure they're all ready to
go," said Hannah Bernard, head of business banking at Barclays.
As one of the first major markets to begin collecting
state-backed loans from the pandemic, the world will be watching
how Britain's banks fare.
The government's early estimate was that losses on the most
popular bounce back loan scheme that enabled small businesses to
borrow up to 50,000 pounds with few questions asked – could be
up to 60%, when taking into account credit problems and fraud.
While the loans are either 100% or 80% guaranteed by the
government - limiting the potential financial pain for banks -
they must make all efforts to collect before the state pays up
and some bankers said those costs could mean they make an
overall loss on the scheme.
HANDLING DISPUTES
So far, senior bankers interviewed by Reuters said cases of
outright fraud seem to be lower than expected. There are also
schemes allowing most borrowers to extend payments, but evidence
of disputes with borrowers are emerging.
Social media posts from disgruntled customers, interviews
with small businesses, and copies of letters sent by banks to
customers and seen by Reuters show some borrowers are unhappy
with their treatment.
"This will be a big test of 2008 proportions," lawmaker and
chair of the all-party group for fair business banking Kevin
Hollinrake said. "I'm very concerned, as warm words from the
banks… from the top haven't always been mirrored by actions at
the coalface."
One doctor in the National Health Service, who took out a
bounce back loan for a private practice, told Reuters after he
ticked a box on an HSBC form asking if he was experiencing
financial hardship, he was dismayed to see the hoped-for
extension declined and the bank immediately took full payment.
HSBC said it had tried to contact the customer three times
through various channels, and that its online forms made clear
that ticking the box would automatically exclude a deferral.
Other bank customers have had the full 50,000 pounds loan
amount demanded back within 14 days and been told they made
mistakes in the application or were never eligible in the first
place, according to copies of letters sent to them and reviewed
by Reuters.
Bankers said abrupt treatment and demands for immediate
repayment would only happen in cases of suspected fraud. They do
not want to risk undoing the perception of Britain's banks
having had a 'good crisis'.
Out of an initial wave of around 60,000 bounce back loans
that have come due for repayment at NatWest, only a single-digit
percentage have failed the first payment, said Andrew Harrison,
interim head of business banking.
Yet the removal of hundreds of bank branches in recent years
will not help in any dispute resolution, business leaders said.
"As more firms start to struggle this is the moment when the
bank should be the sound adviser and I don't think businesses
look at them that way, it was all done by algorithms, so there
are no relationships," said Richard Burge, chief executive of
the London Chamber of Commerce.
'EMPATHY TRAINING'
The real pain may be yet to come.
"We shouldn't underestimate the continued high level of
government support, and after it is turned off the question is
how many businesses can really survive," NatWest's Harrison
said.
The bank, which has renamed its 'debt management operations'
unit 'financial health and support', has hired an extra 150 debt
collection staff, he said, and used behavioural science
techniques to better understand the reading abilities of
customers and strip out jargon.
HSBC has likewise hired around 200 extra staff and trained
them to empathise with customers, the lender's head of
commercial banking Amanda Murphy said.
"What we are better at now, and it's not just banks but I
think society, is understanding more about vulnerability, the
stresses people have and the connection between one's business
and personal life," she said.
"If someone is telling you 'I've come to the end of my
tether', that's not just a phrase," Murphy said.
Staff have been trained on how to handle and refer such
cases to specialist teams, as well as making customers aware of
independent third party resources, she said.
CRACKS APPEAR
With plans for an industry-wide collections body having
collapsed, banks will face scrutiny on how they collect loans,
and in some cases how much they charged.
The bulk of loans were awarded at low interest rates making
debt relatively easy for firms to service - including bounce
back loans fixed at 2.5% - but there was a significant chunk
granted under other schemes with no fixed price.
More than 3 billion pounds of funds for nearly 17,000
businesses were charged at double-digit interest rates,
according to figures obtained under a Freedom of Information
request by anonymous small business campaigner Mr Bounce Back.
These higher rates were mainly charged by non-bank lenders
unable to benefit from cheap Bank of England funding.
Business banking account provider Tide recently told small
business customers it would not provide payment deferrals on
bounce back loans because it couldn't afford to, Reuters
reported.
"We really wanted to help and are as disappointed as
anyone," said Oliver Prill, CEO of Tide, who urged the BoE to
open up its cheap funding to non-banks.
As the industry largely succeeded in getting money quickly
to businesses that needed it, the challenge now is to avoid
undoing all that good work through the collections process.
"No bank wants the reputation that the industry had 13 years
ago, nobody wants that," said HSBC's Murphy.
(Reporting By Lawrence White and Iain Withers, Editing by
Rachel Armstrong and Elaine Hardcastle)
