Britain's banks took a gloomier view than almost all their European peers in their second quarter earnings, as coronavirus fears, Brexit and low interest rates caused them to bake tougher 'worst-case' scenarios into their risk models.
) beat analyst forecasts, benefiting from bumper trading volumes as well as relatively modest provisions.
“The UK banks are facing a more significant economic drop than most Europeans as the UK has faced a bigger shock from the COVID-19 pandemic, and that has fed through into provision levels,” said Patrick Hunt, partner at consultancy Oliver Wyman. The roll out of further lockdowns across the north of England in response to a rise in infections also threatens to derail the country’s nascent economic recovery and damage bank balance sheets further.NatWest and Lloyds gave guidance that loan-loss provisions should be lower in the second half of the year, raising hopes the country’s banks may have “kitchen sinked” provisioning and got ahead of European rivals.
Lloyds, for example, said Britain’s GDP could tumble 17.2% in a worst scenario compared with a 7.8% fall previously modelled as the extreme downside case when the bank reported results in April. NatWest chief financial officer Katie Murray said the bank’s worst case took account of both further lockdowns to control the spread of the virus and a disruptive Brexit.
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