The UK government-backed British Business Bank has warned that the worsening economy could increase the number of companies unable to repay its loans, including coronavirus pandemic support.
The BBB said in its annual report on Wednesday that “should an economic downturn occur, there would likely be an increase in defaults on loans” given under Covid crisis loan schemes.
The report was published on the same day that the Bank of England, which said last week that the UK was already in recession, was forced to intervene in bond markets to protect British financial stability.
During the pandemic, the government under the then chancellor, Rishi Sunak, rolled out a series of loan schemes worth tens of billions of pounds to prevent businesses collapsing. It asked the bank to administer several of them.
The BBB said that 85% of Covid-19 loan repayments were “either fully repaid or meeting monthly repayments as scheduled”, but its chief executive, Catherine Lewis La Torre, acknowledged “areas of economic and geopolitical uncertainty” as the UK braces for a recession.
She said the bank had experienced successes, including an above-target rate of financial returns, but added further support might be required for small British businesses.
“Despite this success over the last financial year, we are aware that areas of economic and geopolitical uncertainty remain,” she said. “The serious headwinds that the economy is encountering make a national economic development bank an invaluable strategic asset, and we are ready and prepared to play whatever role is required to support UK smaller businesses.”
The BBB has faced criticism for its handling of fraud and losses related to coronavirus financial support, with the former Conservative minister Theodore Agnew calling for increased transparency, in particular with regards to the £47bn bounceback loan scheme. Recipients of bounceback loans have in some cases used them to pay for jewellery, expensive cars, property, and even pornography – rather than to support businesses.
The bank said it had increased its fraud-fighting resources during the year, but acknowledged weaknesses in the bounceback loan scheme in particular that left it open to fraud.
“The design of the bounceback loan scheme and the speed of its implementation did, however, introduce unprecedented fraud and financial crime risks,” the report said.
The bank has so far refused to release the names of companies who received bounceback loans, saying it would harm commercial interests. The campaign group Spotlight on Corruption is taking the BBB to a tribunal to try to compel it to release the names.
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British Business Bank warns of risk of defaults on Covid support loans