LONDON (Reuters) – Britain’s financial sector is proposing repackaging some 35 billion pounds ($ 44 billion) in state-backed coronavirus business aid loans to ensure taxpayers don’t foot the bill.
The UK government introduced state guaranteed loans after a coronavirus lockdown in March forced thousands of businesses, large and small, to close for several months.
“Many companies swim hard to stay afloat and they cannot meet the challenge of paying down debt,” Adrian Montague, president of TheCityUK, said at a City & Financial online event.
TheCityUK has announced that it will send its report this month recommending the transfer of the state-guaranteed debt to an independent body at the UK Department of Finance.
“The debt can then be replaced either by some sort of tax liability recommended by the report or converted into long-term capital,” said Lloyd’s Bank chairman Norman Blackwell.
The government or the new body would then have to find ways to bring in private finance and remove it from the public sector’s balance sheet “at an appropriate discount,” Blackwell added.
Recapitalized companies would retain control of themselves.
Repayments on the loans, which are administered by the banks, are expected to begin in March. But a third of the companies that took them will find it difficult to repay unless they are recapitalized, said Omar Ali of consultancy EY.
“We are talking about around £ 35 billion of loans in government programs at this point globally, becoming potentially unsustainable,” Ali said. Around 750,000 small and medium-sized enterprises and over 3 million jobs are at risk.
Unsustainable corporate debt could rise to £ 100 billion in total, with government guaranteed debt accounting for a third of that, he said.
Katharine Braddick, chief financial officer at the Department of Finance, said banks need to be cautious due to the ‘specter of GRG’, a reference to the mistreatment of small businesses ten years ago by the Royal Bank of Scotland.
“It’s difficult for banks to grow our business support units to be able to handle all of this and do it with sensitivity,” Blackwell said.
Reporting by Huw Jones; Editing by Alexander Smith
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