Britain’s four major lenders set aside £2.5billion this week to deal with bad debts in a clear sign that bankers are bracing for a recession.
NatWest today recorded an ‘impairment charge’ of £242m for the past three months alone. This compares favorably to Barclays at £381m, Lloyds Bank at £668m and £930m at HSBC, but is still a clear sign of impending distress.
That £2.5billion figure does not include write-offs from other high street lenders, such as Spanish-owned Santander or Nationwide Building Society.
Fears of a house price crash of perhaps 30% are growing. This would leave many people in a negative financial position, just as they come to renegotiate mortgages at much higher prices as interest rates soar.
NatWest chief executive Alison Rose said the bank had carried out 600,000 financial health checks as it sought to be proactive in managing people’s finances.
“Anxiety levels in people are high,” she told The Standard. “We don’t see mortgages coming into the zones yet, but we know people are very worried.”
A survey for the ES today showed that financial strain is one of the biggest threats to mental health in the UK.
More than a third (34%) of Britons say inflation is the main cause of stress, according to Lifeworks data, while a lack of emergency savings is a key factor in deteriorating mental health , regardless of income.
The inflation rate hit an annual high of 10.1% in September as soaring food prices pushed up the cost of living.
NatWest posted third-quarter profits of £1.1bn, slightly below City’s estimates. The provision for bad debts was higher than expected. Rose said: “Our outlook for the economy is worse than it was.”
She pointed out that the outlook is much better than it was before the financial crash of 2008.
“We are absolutely not in 2007. The banks are in a different position, we have a lot of liquidity to be able to support our customers.”
Employment is at high levels, she notes. “Normally when you’re going through a downturn, jobs are the big issue. We’re in resilient shape, we’re lending responsibly to the economy.
Shares in NatWest, still 40% government-owned after a bailout in 2008, fell 21p, more than 8%, to 226p.
Investec’s Ian Gordon today told clients he believed there was “much greater upside opportunity at Barclays” than at NatWest. Unlike Lloyds and NatWest, Barclays is less exposed to the UK economy.
Bank profits should rise as interest rates rise. However, debt defaults are likely to hurt their returns.