By Scott Wright

THE chairman of Royal Bank of Scotland has called for banks to be given time to build up their capital strength after the coronavirus pandemic has passed, as major institutions said the delay by the government in providing 100 per cent guarantees on loans had slowed their ability to lend to customers.

State-backed Royal Bank declared last week that it had entered the crisis from a strong capital position, as it made provisions for bad debts rising because of the bleak outlook for the economy.

While Sir Howard Davies told shareholders last week that the bank was in a stronger place than it had been before the financial crisis around a decade ago, he issued a plea to regulators yesterday for banks to be given breathing space to rebuild their capital after the pandemic eases. His comments came during the first in a week-long series of City Week webinars on the impact of Covid-19 on financial markets. Sam Woods, deputy governor of the Bank of England, told the webinar that the banks should have enough capital to meet the increased demand for loans from customers because of the pandemic.

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“It should be enough to accommodate even an upper end estimate of what might be needed here,” Mr Woods was quoted by Reuters as saying.

Major UK banks have already agreed to a request from the Prudential Regulation Authority to suspend dividend payments to protect banks’ capital positions during the crisis.

Meanwhile, bosses of five major banks were asked by MPs yesterday to respond criticisms that they have not been delivering support to customers quickly enough under the government’s Coronavirus Business Interruption Loan Scheme (CBILS).

Banks were also asked by Treasury Select Committee to comment on “unflattering” comparisons with countries such as Germany, Switzerland and France.

While France is reportedly lending €40 billion to businesses, and Germany $7bn, banks in the UK have so far lent around £4.1bn.

Asked by Labour MP Rushanara Ali why UK banks were not releasing funds as quickly as France, David Oldfield, chief executive of commercial baking at Lloyds Banking Group, said comparisons were difficult because of the differences in the loan schemes.

In the UK, loans are 100% guaranteed by the state under the “bounce back” scheme for loans of between £2,000 and £50,000, which opened yesterday. The CBILS loans are 80% guaranteed by the government.

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Mr Oldfield said: “They key difference, outside of bounce back (loans), is that some of the European schemes have had a 100% government guarantee from day one. That therefore alleviated some of this pressure on the banks to do the affordability and the viability checks.”

Paul Thwaite, chief executive of commercial banking at Royal Bank of Scotland, agreed and noted that in the UK more customers are taking advantage of “extensive capital repayment holidays”.

Asked by Ms Ali if banks were refusing to lend businesses in the hospitality sector, Mr Thwaite replied that there are “no exclusions”. He noted that more than half of CBILS applications have come from the retail, leisure and hospitality sectors.

Mel Stride, chairman of the Treasury Select Committee, asked Mr Oldfield to comment on criticism Lloyds has received over its perceived lack of lending to the small and medium-sized enterprise market.

Mr Oldfield replied that the bank is “doing our level best here to help our customers up and down the country”. He said it is “not true” large numbers of customers are not qualifying for CBILS, noting that eight out of 10 applications are being approved.

Lloyds, which owns Bank of Scotland, has so far advanced 4,500 loans worth £618 million. Mr Oldfield admitted it had been a “slow start” and alluded to challenges linked to the automation of the process, as highlighted by Amanda Murphy, head of commercial banking at HSBC, and Starling Bank chief executive Anne Boden. But he added that “we are now building momentum.

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Mr Oldfield said: “What actually we are hearing from many of our customers is what they really want – and the ratio is about 10 to 1 – just now is that most helpful is a capital repayment holiday on their existing borrowing, and or short-term overdraft relief because working capital is tight.”

Asked if Lloyds is lagging the amount the bank could be expected to lend, Mr Oldfield accepted it was “behind where it wanted to be at this point”. Last week Lloyds accounted for 18% of new CBILS loans, which he said was “getting closer to its 19% share of SME lending”.He added: “It’s a fair challenge… we are catching up on those weeks where we were inundated by volume on a process that really wasn’t built for scale in those early days”.

Bank chiefs were also asked about their capacity to deliver on the new “bounce back” loans of between £2,000 and £50,000, which come with a 100% loan guarantee for lenders from the government. The scheme went live yesterday morning.

Felicity Buchan of the Conservative Party asked Mr Thwaite if Royal Bank had the operational capacity to process loans and get cash out in one to two days, and what level of demand he is anticipating. Mr Thwaite responded by saying he assumed there would be “significant demand” for the loans. He said the bank had increased its resources by 50% in contact centres.

Ms Boden said many customers who had applied for CBILS would be better off applying for a bounce back loan, citing its competitive interest rate of 2.5%. Businesses which have taken out a CBILS loan of £50,000 or less can apply to switch these to the bounce back scheme.

Mr Thwaite said NatWest Group, which Royal Bank of Scotland will become known as later this year, would offer customers access to both schemes.