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U.K. Bank Loan-Loss Situation Improves as Economy Grows

U.K. banks’ losses on loans were “exceptionally low” in 2014 and the outlook for the next two years has improved with the economy forecast to outpace other major European countries, international rating agency Standard and Poor’s (S&P) said.

Losses on domestic loans came to 3.3 billion pounds ($4.9 billion) last year, 78 % less than S&P forecast and compared with 17.1 billion pounds in 2013, the credit ratings company said in a report on Wednesday. S&P expects loan losses will climb to 6.9 billion pounds in 2015 and 8.5 billion pounds in 2016, both lower than it forecast mid-2014.

 “2014 proved to be a remarkable year as loan losses plummeted, helped by the acceleration in U.K. economic growth,” analysts led by Nigel Greenwood said. “The two banks with the largest stock of non-performing-loans – Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc – reported a sharp fall in bad debts last year”, he said.

The British economy has recorded its longest stretch of uninterrupted growth since 2008 and the International Monetary Fund forecasts it will trail only the U.S. among G7 in 2015.

The recovery has been favorable for the U.K.’s state-owned lenders. RBS has taken advantage of the increasing value of its toxic assets and plans to dispose of most of its bad bank this year, 12 months ahead of schedule. The U.K. government has increased the timetable to dispose of its remaining 23 % stake in Lloyds after the lender returned to profit.

RBS’s ratio of bad debts to total loans declined to 6.8% in December compared with a peak of 9.5% as of June 2013 and at Lloyds fell to 2.9% from 10.3% at the end of 2010, S&P said. “In both cases the improvement reflected better performance and more favorable market conditions for portfolio disposals of commercial real estate and commercial loans,” according to the report.

Provided data and forecast show continuous economic growth in the U.K. as businesses become more profitable, consequently loans are returned to banks in time. In these favorable conditions setting up or diversify your business in the U.K. will be reasonable decision. To facilitate this process MN Consulting could assist you in all necessary banking arrangements as well as accounting and financial services.

 

by Anna Maximova, PhD in economics

(adopted from Bloomberg business news)