NatWest shares set to slide after tapping £5bn from BoE for SMEs

The UK lender could see its shares come under increased pressure after it withdrew £5 billion from a Bank of England fund to help it lend to small businesses struggling amid the economic fallout from the coronavirus pandemic.

  • NatWest Group shares could slide after tapping BoE for funds to support lending to SMEs
  • British lenders under increased pressure amid rising bad loans due to Covid-19
  • FCA urges UK lenders to offer extra help to mortgage borrowers

NatWest Group is likely to see its share price slide after it opted to withdraw £5 billion from a Bank of England (BoE) fund set up to support lending to small businesses struggling to cope with the economic fallout from the coronavirus pandemic.

So far, NatWest has relied on the BoE’s TFSME scheme more than any other UK bank, which has provided around £14.3 billion in capital to lenders based on an ultra-low interest rate of 0.1%.

NatWest closed at 103p per share on Thursday, with the stock down 57% year-to-date.

Rising bad loans piles on pressure for UK lenders

The UK banking sector is braced for Brexit and continues to wrestle with the economic fallout from Covid-19, with lenders strengthening balance sheets to cope with a rise in bad debts, while low interest rates squeeze margins ever tighter.

The BoE voted to leave interest rates unchanged at 0.1% in August. However, the BoE is already considering negative interest rates for the first time in its history due to the ongoing impact the coronavirus is having on the UK economy.

The central bank predicts unemployment will hit 7.5% by the end of the year, which would be relatively low considering how deeply the crisis has impacted the UK economy. It also forecasts credit losses of around £80 billion, though the actual figure could be much higher if localised lockdowns persist and a reopening of the economy is intermittently interrupted.

Unsurprisingly, with the myriad of headwinds UK banks face, the likes of Lloyds, Barclays, NatWest Group, formerly Royal Bank of Scotland (RBS) and HSBC are likely to see their share prices struggle throughout 2020 and beyond.

FCA urges British lenders to provide help to mortgage borrowers

The Financial Conduct Authority (FCA) urged UK lenders to offer extra help to mortgage borrowers struggling to make repayments once payment holidays and the furlough scheme are unwound in October.

‘It is important that consumers who can afford to resume mortgage payments should do so,’ acting FCA CEO Christopher Woolard said in a statement.

‘However, we understand that borrowers facing payment difficulties because of the pandemic will continue to face uncertainty and may also experience temporary interruptions in income.’

Woolard went on to tell UK banks that they should do all they can to assist customers with managing their finances amid such challenging times.

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