UK banks park $1.5b to cover bad loans as recession looms

Some of the UK’s biggest high street banks are bracing themselves for trouble.

Barclays Plc, Lloyds Banking Group Plc and NatWest Group Plc have together put aside nearly £1.3 billion ($1.5 billion) to cover bad loans, earning reports this week showed. HSBC Holdings Plc, which makes most of its money in Asia, also set aside $200 million “in respect of an uncertain UK macroeconomic outlook.”

These provisions, the biggest since the Covid-19 pandemic, took the shine off what might have otherwise been a strong set of earnings. Interest rate rises swelled returns on loans and ended more than a decade of vanishingly small margins for retail banks. Rivals in Europe were more wholeheartedly positive about the effects of rates this quarter.

Shares in NatWest dropped by as much as 9.7% after the firm’s profit missed estimates — due partly to the impairment charge — and it warned of a worsening economy.

British lenders all lowered their expectations for the economy in the coming year. Their models aren’t perfect predictors — they’d penciled in almost no growth in the housing market for last year, when prices ultimately rose by double digits — but the figures do reflect concerns about the financial health of borrowers.

Meanwhile, Barclays has said that its baseline assumptions for the economy have all declined in the past three months, with the lender now modeling for 0.3% annual growth in UK GDP next year, down from 1.7% it was expecting just three months ago.

—Bloomberg