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(Alliance News) - Five of the UK's biggest lenders will pocket nearly GBP1 billion in a taxpayer-funded payout for supporting small businesses during the Covid-19 pandemic, according to a new report.
An in-depth analysis of the government's GBP38 billion loan scheme by the National Audit Office also showed that "significantly above" GBP2 billion could have been paid out to fraudsters.
The report warned the fraud risk was high because of the speed at which the bounce back loan scheme was implemented earlier this year.
For instance, it took a month for bankers and officials to implement a system to ensure a business could not get more than one loan. This meant that up to 16,000 approved loans could have been duplicates, the report showed.
More than GBP38 billion bounce back loans of up to GBP50,000 each have been lent to close to 1.3 million companies. The government guaranteed the loans and promised to cover the first year's interest payments.
The British Business Bank, which was tasked with running the scheme, believes it will pay out GBP1.07 billion to the high street lenders that provided the cash. Around nine-tenths of this will go to the five banks that provided the lion's share of the funding.
Barclays PLC, HSBC Holdings PLC, Lloyds Banking Group PLC, NatWest Group PLC and Banco Santander SA's UK unit paid out GBP31.3 billion of loans between them while 18 lenders others were responsible for GBP3.9 billion.
They will get all their money back, with interest, because the government has promised to pay out if businesses default.
However, banks have also agreed not to charge fees on the loans, and some will likely be losing money on the low-interest loans. In fact some lenders decided not to participate in the bounce back scheme because the costs would outweigh the interest payments.
A spokesperson for bank trade body UK Finance said: "Business Interruption Payments under the Bounce Back Loan scheme are designed to offset any interest that would usually be charged to a business customer for a commercial loan. They are therefore effectively a payment to the business not a subsidy for the lender. Lenders also agree not to charge any fees for setting up the loan or early repayment but will of course bear administrative and funding costs."
The report also said Cabinet Office officials believe that fraud losses from the scheme are likely to reach "significantly above" normal estimates for public-sector fraud of between 0.5% and 5%. This would mean that more than GBP1.9 billion has so far ended up in the pockets of fraudsters.
Bankers and officials have acted at breakneck speed to get money to struggling companies, often paying out within a day of receiving an application.
However, the scheme had many teething issues in the first month when more than GBP21 billion was provided in 699,000 separate loans.
From when the scheme was launched on May 3, until June 2, there was no way to ensure that a business did not pocket GBP50,000 from one bank before applying for another GBP50,000 from a different lender.
One estimate cited by the NAO claims that up to 2.3% of loans that were paid in the first month, a little over 16,000, were duplicates.
"With concerns that many small businesses might run out of money as a result of the Covid-19 pandemic, government acted decisively to get cash into their hands as quickly as possible," said NAO boss Gareth Davies.
"Unfortunately, the cost to the taxpayer has the potential to be very high, if the estimated losses turn out to be correct."
He called on ministers to make sure that it has "robust" measures in place to collect debts from the businesses that owe money under the scheme, and investigate fraud.
Last week Beis revealed that it expects that borrowers will default on between 35% and 60% of the bounce back loans – potentially leaving the government on the hook for more than GBP22 billion.
However, other estimates from the Office for Budget Responsibility and the BBB could see the default rate could even reach 80%, or as low as 15%.
The NAO said that around nine in 10 loans had gone to so-called micro businesses with turnovers below GBP632,000 per year.
By November 4, the government estimates the scheme will have lent between GBP38 billion and GBP48 billion, according to the NAO. The scheme was originally forecast to reach between GBP18 billion and GBP26 billion.
The sectors that have benefited the most include real estate, professional services and support activities companies. Some GBP8.5 billion was paid out to around 283,000 companies in those sectors.
Most of the loans were approved by lenders in up to 72 hours, the NAO found. But two of the big lenders who offered loans to new customers said that the applications could take between four and 12 weeks because of high volumes of applications.
Most banks only provided bounce back loans to existing customers.
The BBB said: "The British Business Bank acknowledges, as the report does, that 'much hard work remains over the coming months and years to ensure that the risks to value for money are minimised'.
"We have been, and will remain committed to this work, liaising closely with government, lenders and other stakeholders."
Applications for new loans are open until November 30.
A government spokesperson said: "We've looked to minimise fraud – with lenders implementing a range of protections including anti-money laundering and customer checks, as well as transaction monitoring controls. Any fraudulent applications can be criminally prosecuted for which penalties include imprisonment or a fine or both."
By August Graham, PA City Reporter
source: PA
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