Coronavirus: Banks could lose up to £10bn on defaulted payments

The UK’s top banks could face losses of up to £10bn ($12.5bn) as payment holidays on loans come to an end and there is a high chance of customers defaulting, research by Barclays (BCS) has found.

The end of the payment break, which was granted on more than £250bn to help people deal with the economic fallout of the coronavirus pandemic, will coincide with mounting of job losses, according to the research, which was cited by This is Money.

It was reported last week that UK firms cut more than 12,000 jobs in two days. At the same time, customers will be asked to resume their payments on mortgages, personal loans and credit cards.

Barclays said banks including Lloyds (LYG), HSBC (HSBC) and RBS (RBS) agreed to pause customer repayments on 17% of mortgages, 8% of personal loans and 2% of credit cards.

The report estimated that if a quarter of the customers on mortgage payment holidays will default, leading to losses of £7.5bn.

UK banks could also lose up to £217m on credit card repayments and £2.2bn on personal loans, bringing total losses to £9.9bn.

Lloyds, the country's largest lender, is the most exposed to the impact of defaulters, but also had the “best prospects” due to the quality of its loan book, Barclays said.

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Nationwide, one of the top mortgage lenders, is particularly exposed to the housing market and could lose as much as £1.1bn.

RBS is estimated to lose as much as £989bn and HSBC £742m.

Meanwhile, a recent report by UK Finance found that borrowers have been offered “unprecedented” support by the banking and finance industry during lockdown.

Figures from June show 1.9 million mortgage payment deferrals have been offered to customers, equalling one in six mortgages in the UK.

As for job cuts, union leaders have warned of a return to 1980s levels of mass unemployment if urgent action is not taken to support workers and businesses.

In a statement ahead of the Chancellor’s financial summer statement on 8 July, they warned there is only a “very short window” to prevent hundreds of thousands of workers from losing their jobs.