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By Iain Withers and Lawrence White
LONDON, March 2 (Reuters) - Britain's big four banks amassed
more than 200 billion pounds ($277.52 billion) of new deposits
last year as customers reined in spending through pandemic
lockdowns, far outstripping extra lending to struggling
businesses and households.
Full-year earnings reported by HSBC, Barclays
, Lloyds and NatWest last month
revealed the extent to which lenders' finances have been upended
by the crisis.
The banks now face a glut in savings, a Reuters analysis of
the banks' results show, as domestic customers of the four
lenders deposited 221 billion pounds of extra cash.
By contrast, despite banks doling out billions of pounds of
state-guaranteed finance to companies since the pandemic hit,
their net lending growth in the UK overall was 53.4 billion
pounds - a quarter of the growth in deposits.
The more limited lending growth can be explained by a fall
in appetite for some lending, particularly consumer credit,
where separate Bank of England data has shown Britons paid back
13.8 billion pounds in the last year.
More deposits help shore up bank finances, but are not
necessarily good news for lenders when central bank interest
rates are near zero, making it hard to lend profitably.
That explains the heavy focus on wealth management in banks'
strategy updates last month, as they race to earn more from fees
to compensate for low lending margins.
Banks have said they expect a customer spending splurge as
Britain comes out of its latest lockdown in the coming months,
which may go some way to eating into the deposits pile.
The bulk of UK bank profits are made on the difference
between the interest gained on lending and paid out on deposits.
The crunch in consumer credit therefore severely dented
lender income, compounded by the fact the Bank of England cut
benchmark rates to an all-time low of 0.1%.
This double whammy can be seen in sharp drops in income at
the two domestically-focused banks - NatWest and Lloyds - where
income fell 24% and 16% respectively last year.
The fall was a more modest 10% at HSBC, which benefited from
a more international footprint and exposure to markets in Asia
that proved more resilient over the year.
Barclays bucked the trend entirely, with income overall
edging up 1% thanks to a stellar year for its investment bank in
pandemic-driven volatile markets that offset woes in retail.
The big unknown for the banks remains how severe a hit the
crisis will deal to their loan books, once government stimulus
packages to support consumers and businesses are phased out.
The four banks have set aside nearly 19 billion pounds worth
of provisions between them for loans expected to go bad due to
the crisis.
These provisions were largely front-loaded in 2020, with the
bulk taken in the first half of the year - as lenders are
required to book ahead of time under forward-looking accounting
rules known as IFRS9.
Despite the torrid economic backdrop, the provisions in the
last two quarters were back to pre-crisis levels at at least
some of the banks - a reflection of the impact of ongoing
government stimulus.
Britain's Finance Minister Rishi Sunak is expected to extend
support again on Wednesday when he lays out his annual budget
plan that is expected to pile more borrowing on top of almost
300 billion pounds of COVID-19 spending and tax cuts.
Banks know there is a great deal of delayed pain to come and
it is unclear whether their provisioning to date is sufficient.
Solving this conundrum will be key to jump-starting British
banks' share prices, which have languished in recent years over
fears about Brexit and near-constant restructuring that has
crimped profits.
Optimism over vaccine rollouts has seen the lenders' shares
climb back towards pre-pandemic levels since the autumn, but
that still leaves them near 12-year lows.
($1 = 0.7207 pounds)
(Reporting by Iain Withers and Lawrence White; Editing by Susan
Fenton)
