By Oliver Smith on Friday 29 July 2022
While Starling Bank has been under fire from Lord Agnew for its BBLS performance, new figures put it in the middle of the pack.
The first figures have been published by the UK government on the performance of its three emergency Covid loan guarantee schemes.
Under the Coronavirus Business Interruption Loan Scheme (CBILS), Coronavirus Large Business Interruption Loan Scheme (CLBILS) and Bounce Back Loan Scheme (BBLS) lenders could claim a payout from the British Business Bank for failed loans.
Collectively CBILS, CLBILS and BBLS supported some £47bn of lending to SMEs during the pandemic, helping thousands of small businesses to continue operating while the economy stalled.
According to the government’s figures which cover the period up to the end of March, some 85 per cent of the loans issued under those schemes have either been fully repaid or are meeting their monthly repayments.
So far 8 per cent of the loans covered by the government’s guarantees have been subject to a default and just 0.6 per cent have gone all the way to the lender claiming a taxpayer payout.
In total £420m has been paid to lenders to cover failed loans.
Metro Bank has been the largest beneficiary of these loan guarantees, claiming £122m for just over 3,000 loans that have soured, representing around 7.8 per cent of the loans it issued.
"The British Business Bank (BBB) has emphasised that these are early figures and may be distorted given the difference between different lenders’ claims and recoveries processes," a spokesperson for Metro Bank told AltFi.
"The classification of these loans as defaults and not fraudulent has also been confirmed by the BBB. As such, it is too soon to draw conclusions from them. As more data is reported over time, we expect Metro Bank to move more broadly in line with our peers."
Over 25 per cent of Tide’s 1,826 Bounce Back Loans resulted in a payout (473 loans worth £14.9m), while just over 23 per cent of Capital On Tap’s 661 loans resulted in a payout (154 loans worth £4.7m).
In the wake of the figures being published, Tide CEO Oliver Prill yesterday wrote a blog post stating that every loan it issued met the government's eligibility criteria, and also that one of the reasons digital lenders may appear to have higher loss rates is because they are submitting claims to the British Business Bank more quickly.
"Digital lenders may still have a higher Bounce Back Loan default rate than the traditional banks. For the most part, this will be explained by digital lenders serving younger businesses with a naturally higher failure rate," added Prill.
The lending figures also follow the government’s counter-fraud minister Lord Agnew launching an attack on Starling Bank, claiming it was “one of the worst” performers in distributing government-backed loans.
However, the numbers show that Starling’s payout from failed loans (£61.3m) currently is lower than Metro Bank and Barclays (£87.9m), and accounts for around 3.1 per cent of the neobank’s total volume of loans.
Agnew criticised Starling for claimed anti-fraud failures in lending money under the scheme, an accusation strongly denied by Starling and its CEO Anne Boden.
As anticipated, however, the data is not without its flaws.
There’s a whole section of the report entitled “limitations and further considerations” which includes that “data being collected remains fluid and subject to refinement and correction over time (comparative analysis may therefore have limitations)”.
The report also outlines that differences between lenders, how advanced their claims and recoveries processes are, and the speed and scale at which they operate in dealing with defaults can all influence the reported figures.
Capital On Tap has yet to respond to AltFi's request for comment on their BBLS performance.