UK government puts banks in the spotlight after releasing BBLS data

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 GBP 47 billion of lending to Small and Medium Enterprises (SMEs) during the pandemic, helping thousands of small businesses to continue operating while the economy stalled.

Taxpayers have been left to foot a GBP 421 million bill to cover soured COVID-19 debts, after one in 12 businesses defaulted on state-backed emergency loans distributed at the height of the pandemic, official figures reveal.

The potential of fraud in Bounce Back Loan Scheme

BBLS, which were 100% government backed, were distributed by 28 high street banks and other lenders, with applicants able to borrow up to GBP 50,000 each. Metro Bank, Barclays, and Starling Bank have claimed the most money to date on BBLS, with the government paying out GBP 122 million, GBP 88 million, and GBP 61 million respectively.

This could be particularly problematic for Starling as BBLS represent more than 40% of its lending book. According to the bank’s latest figures, about 25% of its GBP 1.4 billion exposure is in arrears. Besides, its rapid growth to become a GBP 3.3 billion lender is largely thanks to taxpayer-backed funding.

For Starling, bounce back loans have been instrumental in its transformation from a digital upstart to a fully-fledged lender within the space of a couple of years. According to Financial Times, the bank’s latest accounts show that of the GBP 100 million taxpayer grant, GBP 33 million was used to offset administrative costs, helping Starling achieve a profit.

Revenue streams Starling is persuing

Starling entered the mortgage market in 2021 and has since built up GBP 1.2 billion of home loans mainly through acquisitions. In June 2022, the bank agreed to buy a GBP 500 million mortgage book from specialist lender Masthaven.

In 2021, it acquired Fleet Mortgages, a company that focuses on professional landlords, for GBP 50 million in cash and shares. It also bought a loan book worth about GBP 1 billion from Kensington Mortgages.

It is pursuing other revenue streams as well, including its Bills Manager service to SMEs to help them streamline their finances. The new feature will allow small businesses to have a direct debit or standing order taken from money put into ‘Savings Spaces’ rather than from their main account.