[ 2011-11-14 ]

Banks write off record level of corporate debts
London (UK) - 13 Nov 2011 – The Telegraph - In
the three months to June, "write-offs of loans to
non-financial corporations" almost tripled to
£2.94bn, according to the Bank of England.

The only time the level of losses had ever come
close was in the fourth quarter of 2009, as
Britain was emerging from recession, when
write-offs were £2.5bn.

The sudden increase in loan losses was at odds
with what was then a period of relatively benign
economic conditions.

However, it coincided with a regulatory crackdown
on "forbearance" – whereby banks vary the terms
of a loan to allow struggling borrowers to limp on
and avoid booking losses.

The Bank, the Financial Services Authority and the
International Monetary Fund all raised concerns
about the misuse of forbearance at that time, with
a particular focus on commercial property.

In June, the Bank's Financial Policy Committee
said: "If provisioning is inadequate, banks'
reported profits and levels of capital may provide
a misleading picture of their financial health."

The Bank has repeatedly warned about the scale of
bad commercial property loans on the banks'
books.

The sharp rise in corporate write-offs in the
second quarter, the most recent data available,
lifted total UK loan losses – including credit
cards and mortgages – to their second highest
level on record.

For the three months to June, total sterling
write-offs were £5.1bn, up from £3.2bn in the
first quarter.

The largest quarterly hit came in the final three
months of 2009, totalling £5.8bn. Write-downs on
personal loans edged up to £2.1bn, but remained
far off the peak in the same period the previous
year of £3.5bn.

The write-offs are contributing to a decline in
household debt. Total household debt has dropped
by £8bn to £1.45 trillion in the past year,
roughly in line with the amount of personal debt
lenders have cancelled.

The rate of mortgage losses may be about to rise.
Last week, Lloyds Banking Group revealed a
four-fold increase in mortgage loan impairments
for the nine months to September of £416m and
that £38bn of loans are to borrowers who are in
negative equity.

Taking write-offs cleanses bank balance sheets but
reduces the amount of capital against which they
can lend.


Once the capital is replaced, however, it can be
used to support growing businesses rather than
tied up in companies that can only service the

Source - The Times(UK)

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