Breather for Debt-Driven Consumers With FCA In The Picture

Summary

• The British economy showed signs of gradual recovery once the lockdown was eased. But the impending virus outbreak has severely impacted the economic growth across the globe.
• Though in the initial stage of the pandemic, banks were not as exposed as the corporate sector. At present, the strain on the lenders has been profound.
• Economic stimulus package to shore up liquidity and provide financial assistance had been given by the regulatory authorities to sail through the crisis.
• On 29 September 2020, the Financial Conduct Authority (FCA) issued new guidelines to lenders, telling the financial institutes to offer special support to customers undergoing severe financial crunch.

The Covid-19 pandemic has brought in not only a global health crisis but its ramifications will be seen in various areas ranging from disruptions in economic growth to inequality to food shortage and others. There is no doubt the governments should adopt extraordinary measures to stabilize the economic activities at the global level.

The British economy was showing signs of gradual recovery but the impending outbreak of the virus has severely impacted the process. Similar trends are seen across the world. The pandemic has affected various businesses including the financial services sector with companies likely facing short-term implications on profitability as they are mobilising and taking steps to minimize these impacts.

Though in the initial stage of the pandemic, banks were not as exposed as the corporate sector. But things changed and the strain on lenders had been profound. Responsive measures have been taken up by the financial institutions to provide financial support to retail and institutional customers. Economic stimulus packages with several measures to shore up liquidity and provide financial assistance have been given in response by the regulatory authorities with the support from the UK government.

Recently, a survey of over 2,000 Britons was conducted, which revealed that over 40 per cent of respondents were dependent on credit cards, borrowings, and overdrafts for their survival.

Following the results of this survey, the Financial Conduct Authority (FCA) issued new guidelines to lenders on 29 September 2020, advising the financial institutes to offer special support to customers who are going through a liquidity crunch and are struggling to repay their debt.

The new rules are still under the FCA’s final review and will be applicable from 2 October. The guidelines focus on segments such as store credit, personal loans, overdrafts, and consumer credit including car loans and rent-to-buy arrangements. It acts as an extension to the previous rules which were rolled out in July 2020 and were due to lapse on 31 October 2020.

Interim chief executive of the FCA Chris Woolard said that those who are willing to repay can do so in their interest, but for those who are struggling with debt and facing difficulty in paying back should be offered a tailored package of support to get back to normalcy.

Various statistical figures prove that more than one million Britons have lost their jobs and many businesses have closed down because of the Covid-19 crisis. Experts believe that in the coming months financial pressures are likely to worsen.

Let us glance through fours prominent British banking stocks: HSBC, Lloyds, StanChart, and TCS.

HSBC Holdings PLC

Due to the impact of the Covid-19 outbreak, the company’s reported ECL increased by $5.7 billion to $6.9 billion during H1 2020. The group focused on providing financial assistance for its personal and business segment customers. In the first half of 2020, for personal lending customers, the bank granted more than 700,000 payment holidays on loans, credit cards and mortgages, providing more than $27 billion in customer relief. It successfully provided more than $52 billion of facilities to more than 172,000 customers globally for its wholesale lending customers, both through own relief initiatives and government schemes.

HSBC Holdings PLC (LON: HSBA) stocks traded at GBX 303.90 on 1 October 2020 at 11:15 AM, up by 0.80 per cent from its previous close of GBX 301.50. The stock was having a market capitalisation of £61,406.60 million, recording a 52-week low/high price range of GBX283.35/617.40.

Lloyd Banking Group PLC

The bank has shown early signs of recovery but its overall financial position still remains uncertain. Government-backed schemes, such as Bounce Back Loan, Coronavirus Business Interruption Loan and Coronavirus Large Business Interruption Loan schemes, have helped the group in lending over £9 billion to businesses in H1 2020 ending 30 July 2020. The retail customers were granted payment holidays of over 1.1 million, providing around 33,000 capital repayment holidays to small businesses and corporates to uplift them from financial stress. During the difficult times, payment holidays on insurance premiums were granted and advance payments for life and critical illness claims were given in order to support customers financially.

Lloyd Banking Group PLC (LON: LLOY) stocks traded at GBX 303.90 on 1 October 2020 at 11:20 AM, up by 0.80 per cent from its previous close of GBX 301.50. The stock was having a market capitalisation (Mcap) of £61,406.60 million, recording 52-week low/high price range of GBX 283.35/617.40.

Standard Chartered PLC

The company management feels over the next few months some of the larger markets will start to drive the global economy out of recession. The group has been successful in putting a comprehensive support scheme in place for individuals and smaller businesses which includes loan repayment holidays, fee waivers or cancellations, and loan extension facilities, approving nearly 300,000 applications.

The group was determined to support its customers seeking help, particularly the vulnerable segment. This was evident from the fact that the approval percentage of applications received under voluntary schemes was close to 98 per cent.

Standard Chartered PLC (LON: STAN) stocks traded at GBX 358.60 on 1 October 2020 at 11:31 AM, up by 0.70 per cent from its previous close of GBX 356.10. The stock was having a market capitalisation of £11,239.17 million, recording a 52-week low/high price range of GBX336.80/738.60.

TCS Group Holdings PLC

In the financial highlights for the period from January to August 2020, the group’s loan portfolio amounted to RUB 391 billion with an increase of 9 per cent Y-O-Y. The net loan portfolio increased by 3 per cent Y-O-Y amounting to RUB 317 billion. 

TCS Group Holdings PLC (LON:TCS) stocks traded at GBX 26.38 on 1 October 2020 at 11:59 AM, down by 0.28 per cent from its previous close of GBX 26.45. The stock was having a market capitalisation of £1,851.46 million, recording a 52-week low/high price range of GBX 10.40/27.60.