By Huw Jones
LONDON, July 10 (Reuters) - Britain's financial sector is
proposing the repackaging of some 35 billion pounds ($44
billion) of state-backed coronavirus corporate relief loans to
ensure taxpayers do not foot the bill.
The British government introduced the state-guaranteed loans
after a coronavirus lockdown in March forced thousands of
companies large and small to shut for several months.
"Many business are swimming hard to stay afloat and they
can't face up to the challenge of repaying the debt," TheCityUK
Chair Adrian Montague told a City & Financial online event.
TheCityUK said it will send its report recommending the
transfer of state-guaranteed debt into an arm's length body to
Britain's finance ministry this month.
"The debt can then be replaced either by some kind of tax
paying obligation that the report recommends, or converted into
long-term capital," Lloyd's Bank Chairman Norman Blackwell said.
The government or the new body would then have to find ways
to bring in private finance and remove it from the public sector
balance sheet "at an appropriate discount", Blackwell added.
Recapitalised firms would retain control of themselves.
Repayments on the loans, which are administered by banks,
are due to start in March. But a third of businesses that took
them will struggle to repay unless they are recapitalised, Omar
Ali of EY consultancy said.
"We are talking broadly about 35 billion pounds of lending
in government schemes by that point potentially becoming
unsustainable," Ali said. Around 750,000 small and medium sized
companies and over 3 million jobs are at threat.
Unsustainable corporate debt could be 100 billion pounds in
total, with government-backed debt a third of that, he said.
Katharine Braddick, the finance ministry's director general
for financial services, said banks must tread carefully due to
the "spectre of GRG", a reference to the mistreatment of small
firms a decade ago by Royal Bank of Scotland.
"There is challenge for banks in scaling up our business
support units to be able to handle all this and to do so
sensitively," Blackwell said.
($1 = 0.7937 pounds)
(Reporting by Huw Jones;
Editing by Alexander Smith)
