British banks paid £4.4bn in taxpayers’ money to cover Covid loan scheme losses

More than £4.4bn of taxpayers’ money has been paid out to British banks to cover default and fraud on the £77bn in state-guaranteed loans made to struggling businesses during the coronavirus lockdowns.

The latest official data published on Tuesday showed banks had flagged a further £6.2bn of problem loans, suggesting taxpayers face further significant losses on the various Covid-19 schemes.

Close to £1.2bn of total loans were flagged by banks as suspected fraud, with smaller lenders, such as Conister Finance and New Wave Capital, highlighted as having a significant proportion on their loan books.

Ministers rapidly set up loan support schemes to help many small businesses facing ruin after the government imposed a lockdown as the pandemic took hold in March 2020.

The majority of losses come from the £46.6bn ‘bounce back’ loan scheme which offered companies up to £50,000 with only light checks, making it vulnerable to fraud. The scheme included a full state guarantee on any losses.

The data produced by the British Business Bank showed bounce back lenders had received the vast majority of the payouts from the taxpayer under the state guarantee, totalling £4.1bn. This included £640mn from loans that had a suspected fraud flag. In total, lenders had flagged £1.1bn of bounce back loans as suspected fraud.

David Fleming, UK head of restructuring at Kroll, said: “These are big numbers and given the economic headwinds and increasing interest rates we’re likely to see further challenges ahead.”

About four-fifths of the bounce back loan facilities have been either repaid or are on schedule, with 9 per cent in arrears or in default.

Across all Covid loan schemes, the latest figures showed that £14.5bn of the £77bn has been repaid, with £38bn being serviced by borrowers on schedule.

The data also split out bank exposure to losses. Barclays was the biggest recipient of taxpayer funds under the state guarantee, receiving £1.3bn, or close to 30 per cent of the total paid out so far. The bank said it was “proud to have facilitated over £29bn of funding for British businesses”.

Only about a third of loans made by Conister Finance and close to 40 per cent of New Wave Capital’s lending is on schedule or fully repaid. The remainder is in arrears, defaulted, claimed or repaid by the British Business Bank.

More than a quarter of the money drawn down through Conister and New Wave Capital is suspected fraud, compared with an average of 2.4 per cent across lenders.

A little over 55 per cent of loans made by Starling are on schedule or repaid. The challenger banks, which publicly clashed with former anti-fraud minister Lord Theodore Agnew last May over its fraud rate, had flagged just under 6 per cent of loans as suspected fraud, according to the latest data.

Conister, New Wave and Starling did not immediately respond to a request for comment.