British banks need to accelerate preparations for dealing with businesses unable to repay money they borrowed to cope with the coronavirus pandemic, the national financial sector regulator said on Tuesday.
Over 900,000 businesses have taken out state-backed loans worth around 38 billion pounds ($48 billion) under schemes introduced to help companies deal with the impact of lockdowns, banking industry body UK Finance said on Tuesday.
Financial Conduct Authority (FCA) Chair Charles Randell said some of the debt incurred would turn out to be unaffordable and this would need to be tackled fast to avoid hurting a recovery.
“Lenders will need to scale their arrears-handling functions quickly, and invest in training and controls,” Randell told an online meeting with the chairs of Britain’s banks.
“There needs to be an appropriate dispute resolution system, and we are working with the Financial Ombudsman Service and the Business Banking Resolution Service to ensure that there is capacity to deal with the volumes we may see,” he said.
Banks were criticised for being slow initially in building up capacity to dole out loans, sparking complaints from small companies struggling to stay afloat.
“We can’t allow this to become a replay of the 2008 crisis where the treatment of some small business borrowers did such serious damage to people and to trust in financial services,” Randell said.
UK Finance Chief Executive Stephen Jones said companies should consider their ability to repay before asking for a loan.
Randell said the pandemic’s impact on markets had added to questions about the value of some high-cost and riskier investment products, he said, adding: “We will be saying more about the issue of high-risk investments in the near future.”