UPDATE 1-Bank of England says banks can exclude 'Bounce Back' loans from leverage rules

(Adds more detail)

LONDON, May 4 (Reuters) - The Bank of England will allow
banks to exclude state-backed small company loans made under
Britain's new emergency Bounce Back credit scheme from leverage
rules, it said on Monday, removing a possible disincentive for
banks to lend.

Banks are expanding lending sharply to help companies stay
afloat during the coronavirus pandemic that is sending the
economy into deep recession, piling liabilities onto their
balance sheets.

"The PRA (Prudential Regulation Authority) is offering a
modification by consent for banks subject to the UK Leverage
Ratio Part of the PRA Rulebook to exclude loans under this
scheme from the leverage ratio total exposure measure, if they
choose to do so," the Bank of England said in a statement.

Loans under the Bounce Back scheme pose less of a risk to
banks than traditional business loans because they are backed by
a state-guarantee.

A bank's leverage ratio measures capital to assets on a
non-risk weighted basis.

Excluding Bounce Back loans from the leverage ratio
calculation gives banks more headroom to lend more generally
before they bump up against the maximum leverage ratio set by
regulators.
(Writing by William Schomberg and Huw Jones; editing by Stephen
Addison and Mark Potter)