Lloyds Bank (LLOY.L) has joined the role-call of banks setting aside billions more to deal with bad loans as a result of the COVID-19 pandemic, earmarking another £2.4bn ($3.1) on Thursday.
The bank said it had set aside an extra £2.4bn to cover an expected rise in the number of credit cards, mortgages and loans going bad. Analysts had expected Lloyds to set aside an extra £1.5bn in the second quarter. It takes Lloyds’ total COVID-19 loss provisions to £3.8bn.
The extra provisions contributed to a £3.8bn impairment charge that weighed on Lloyds’ half-year performance. The bank fell to a pre-tax loss of £602m. Income declined 16% to £7.4bn in the first six months of the year.
Analysts were expecting income of £7.4bn and a pre-tax profit of £42m.
“The impact of the coronavirus pandemic in the first half of 2020 has been profound on the way we live our lives and on the global economy,” chief executive António Horta-Osório said in a statement.
“We remain fully focused on helping our customers and the UK economy recover, in collaboration with Government and our regulators.”
Banks have been setting aside huge sums to cover an expected surge in bad debt caused by the COVID-19 pandemic. On Wednesday (29 July), Barclays said it was budgeting another £1.6bn to cover loan losses, while Santander set aside €3.1bn and Deutsche Bank increased its provisions by €761m. Earlier this month UBS set aside $272m to cover losses.
Delinquency rates on loans and mortgages have yet to spike in the UK, largely due to payment holidays and government support measures. However, experts expect that to change in the coming months as payment holidays end and government support is withdrawn.
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UK GDP collapsed by 25% in just two months as a result of lockdown and the Office for Budget Responsibility (OBR) has said the UK is facing its worst recession in 300 years.