Coronavirus: Barclays sets aside £2bn to cover loans going bad as it counts cost of crisis

Barclays has set aside £2.1bn to cover loans going bad as it counts the cost of the coronavirus crisis on the economy.

The provision for credit impairment resulted in a 38% fall in pre-tax profits for the first quarter to £913m – lower than analysts had expected – and is the latest snapshot of how COVID-19 is taking a toll on major lenders.

Chief executive Jes Staley also warned of a “challenging” rest of the year impacted by the fallout from the crisis.

Barclays told investors it expects UK GDP to shrink by 8% this year and said it could take impairments totalling £4.5bn for the year as a whole.

Banks are having to put aside billions to account for the likelihood that loans to businesses and households will default.

Meanwhile big interest rate cuts implemented by central banks to try to mitigate the impact of coronavirus make it harder for them to make profits.

Mr Staley said: “Given the uncertainty around the developing economic downturn and low interest rate environment, 2020 is expected to be challenging.”

He also signalled that the crisis could mean a permanent change in the way the bank works after the widespread move to home working during the lockdown.

“There will be a long-term adjustment in how we think about our location strategy,” Mr Staley told reporters.

“The notion of putting 7,000 people in a building may be a thing of the past.”

The bank’s £2.1bn credit impairment provision for the first quarter compared to a £448m charge for the same period last year.

Its latest figure included the £1.2bn impact of a revised macroeconomic scenario as well as £300m to reflect a slump in oil prices with the remainder covering previously existing uncertainty about the economic outlook as well as loans that had already turned sour during the first quarter.

Barclays revealed that it has lent £737m to companies as part of the government-backed coronavirus business interruption loan scheme.

It has also approved more than 238,000 mortgage and loan payment holidays, and six million customers are not paying charges on personal or business overdrafts.

Shares rose 7% after a strong performance from the lender’s investment banking arm.

Another bank, Standard Chartered – based in London but focused on Asia, Africa and the Middle East – sounded a slightly more upbeat note about the global economy.

“We expect a gradual recovery from the COVID-19 pandemic… before the global economy moves out of recession in the latter part of 2020, most likely led and driven by markets in our footprint,” the lender said.

However, it also took a hit from expected loan losses, helping to push profits for the first quarter down to $1.22bn (£1.11bn) – 12% lower than in the same period a year ago.

Elsewhere, Deutsche Bank reported a loss of €43m (£37m) for the quarter, down from a €97m (£83m) profit in the same period a year ago – blamed both on costly restructuring and the impact of the coronavirus crisis on revenues.

The results come a day after HSBC put aside $2.4bn (£2.2bn) to cover the impact of the pandemic and warned that the crisis could cost it as much as $11bn (£8.7bn) for the year as a whole.

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