Emergency Loan Scheme Revamped On Complaints Against Banking Industry Practices

A research conducted by the Corporate Finance Network of accountants in the United Kingdom showed that as much as a fifth of small and medium businesses may possibly have to shut down permanently in the coming four weeks as they are running out of cash. The risk of SMEs survival in the UK has been blamed to slow moving banking practices and lack of support, refusing businesses to provide government-backed loans amid crisis.

However, the Banking Industry has refuted the claims for not providing business loans amid novel coronavirus. It is in opposition to the British companies complaining that Banks have been extremely slow to respond or were pushing mortgagors towards costlier products with respect to the Coronavirus Business Interruption Loan Scheme, launched last Monday.

The Chief Executive Officer of UK Finance, Stephen Jones, stated that allegations on British banks that businesses were not able to collect the government-backed loans from banks were "completely misleading". He further said that this situation is very critical and looks more like a wartime condition. It is grateful that both participants i.e. the private and public sector are working collectively with the best of their capabilities. He further explained that the banking industry is putting in all their efforts to ensure that the businesses receive loans at the earliest.

But the management of several companies stated that banks have advised them that they are not eligible to receive emergency loans due to ‘not matching criteria’, while in some other cases, the banks reportedly inform them that the cash would take weeks to come or don’t answer the call, altogether. Earlier, the government-backed loans for small businesses were offered only to those firms which have been denied to get a commercial mortgage from their bank. The companies also complained about interest rates as high as 30 percent being charged by banks while also being asked to provide unreasonable personal guarantees in some cases.

In response to these queries, Chancellor Rishi Sunak announced some modification to the Coronavirus Business Interuption Loan Scheme (CBILS). It includes:

• Loans application will not only be limited to the businesses not eligible on commercial terms. That means this change could lead to a significant rise in the number of applicants.
• Treasury has not put any limitation on the interest rates that the banks could charge.
• For borrowings up to £250,000, firms need not to provide any personal guarantees to banks.
• Government-bank loans of up to £25 million available to companies having the revenue of between £45 million-500 million.
• Larger companies (turnover<=£500 million) would be eligible for more help.

On 3 April 2020, Royal Bank of Scotland (RBS) stated that the revamped emergency loans scheme are to bring a big and an immediate impact to help businesses struggling through their survival due to coronavirus lockdown.

Sectors are facing crisis amid novel coronavirus crisis

This epidemic has affected almost every sector around the world, and however, among all industries, the most affected are airlines and energy sectors. The airline sector is facing its biggest crises due to travel bans and quarantine restrictions. This situation has reduced the demand for air travel with many air company flying with thousands of vacant seats.

The oil and gas sector is also facing the worst condition due to decrease in demand. The lockdown globally has ceased the economic and business activities, which also impacted severely on oil demand. Furthermore, the price war between the two biggest oil producers, i.e. Russia and Saudi Arabia, has led the oil prices to plunge by more than 60% since the start of January 2020. The dual attack has resulted in excess supply of oil and lower prices.

Banks roll back dividend payments and bonus to protect economy

Britain’s biggest banks have suspended dividend payments on the directives of Bank of England. The Central Bank also asked these lenders to roll back the executive bonuses with the objective to preserve funds and support nation’s economy during this time of global crisis.

It has been reported that Barclays Plc which had to pay over £1 billion to investors previous week is now ready to suspend its share dividend of 6 pence per share after a sequence of discussions with the Bank of England. After Barclays news, Royal Bank of Scotland and Standard Chartered also declared that they are not going to rewards investors dividends till the end of the year 2020.

The bank which has a significant presence in the United Kingdom, as well as the Asia Pacific, HCBC, stated that it would also cancel all dividends in response to the PRA’s request till the year-end of 2020. It shows that all moneylenders are holding onto more than £7.5 billion, which they would have stumped up for shareholder in the coming few weeks.

Overview of Banking Sector Companies and their Performance on London Stock Exchange

Barclays Plc

Barclays Plc (LON:BARC) is a holding company which lends, invest and moves customers and client money globally. The banks objective is to develop as an outstanding, value creation partnership with the pioneering solutions.

BARC - Share price performance

At the time of writing this report, on 03rd April 2020, at about 10.29 AM (GMT), Barclays Plc’s stock was trading on the London Stock Exchange at a price of GBX 81.05 per share, a decrease in the value of around GBX 0.57 or 0.70 per cent, as compared to previous day closing price, which has been reported to be at GBX 81.62 per share.

As on 03^rd April 2020, the market capitalisation of the company was reported at GBP 14.15 billion with regards to the stock’s current market price. Barclays Plc’s free float and outstanding shares stood at 17.12 billion and 17.33 billion, respectively.

Royal Bank of Scotland Group Plc

The Royal Bank of Scotland Group Plc (LON:RBS) is a leading publicly listed company in banking industry. It provides financial services and products to business and personal clients across the UK and other countries.

RBS - Share price performance

At the time of writing this report, on 03rd April 2020, at about 10.29 AM (GMT), The Royal Bank of Scotland Group Plc’s stock was trading on the London Stock Exchange at a price of GBX 105.50 per share, a decrease in the value of around GBX 2.95 or 2.82 per cent, as compared to previous day closing price, which has been reported to be at GBX 104.45 per share.

As on 03^rd April 2020, the market capitalisation of the company reported at GBP 12.63 billion with regards to the stock’s current market price. The Royal Bank of Scotland Group Plc’s free float and outstanding shares reported to 4.75 billion and 12.09 billion, respectively.

Standard Chartered Plc

Standard Chartered Plc (LON:STAN) is a prominent global banking company. The company supports customers and businesses prosper throughout Africa, the Middle East and Asia. The bank has over 86,000 employees and is operating in 60 markets, whereas its network serves clients in nearly 150 markets internationally.

STAN - Share price performance

At the time of writing this report, on 03rd April 2020, at about 10:48 AM (GMT), Standard Chartered Plc’s stock was trading on the London Stock Exchange at a price of GBX 399.10 per share, an increase in the value of around GBX 0.70 or 0.18 per cent, as compared to previous day closing price, which has been reported to be at GBX 398.40 per share.

As on 03^rd April 2020, the market capitalisation of the company reported at GBP 12.57 billion with regards to the stock’s current market price. Standard Chartered Plc’s free float and outstanding shares reported to 3.15 billion and 3.16 billion, respectively.

HSBC Holdings Plc

HSBC Holding Plc (LON:HSBA) is a LSE-listed financial and banking services group. The international businesses of the company services over 40 million customers globally via a network that covers around sixty-four territories and countries.

HSBA - Share price performance

At the time of writing this report, on 03rd April 2020, at about 11:07 AM (GMT), HSBC Holding Plc’s stock was trading on the London Stock Exchange at a price of GBX 395.70 per share, a decrease in the value of around GBX 2.05 or 0.52 per cent, as compared to previous day closing price, which has been reported to be at GBX 397.75 per share.

As on 03^rd April 2020, the market capitalisation of the company reported at GBP 80.90 billion with regards to the stock’s current market price. HSBC Holding Plc’s free float and outstanding shares reported to 20.30 billion and 20.37 billion, respectively.