Barclays to put more money aside for bad debts as Covid hurts

Banking giant Barclays will this week reveal the scale of provisions set aside for bad loans as the economic fallout from the pandemic intensifies.

Banking giant Barclays is due to update investors on third-quarter trading. Picture: John Devlin.

The coronavirus outbreak has hit many financial stocks with Barclays’ share price down by more than 40 per cent this year.

One of the key challenges facing the industry is a rise in bad loans as businesses fail and unemployment rises.

In its first-half results, Barclays set aside some £3.7 billion in provisions, as the board expected soaring unemployment and corporate bankruptcies to result in fewer of its loans being repaid. The bank is expected to update on third-quarter trading later this week.

One analyst predicted higher provisions. Picture: Getty Images.

Nicholas Hyett, an equity analyst at financial services firm Hargreaves Lansdown, said: “We don’t think the global economic picture has improved much since [the first half] and expect more provisions this quarter.

“The other major headwind is falling interest rates and particularly the threat of rates going negative.

“With interest rates on savings accounts already at rock bottom, but lower central bank rates pushing down the rate banks can charge to borrowers, the bank’s ‘net interest margin’ (the difference between what the bank pays for funding and what it earns on loans) is set for a squeeze.”

He added: “The good news is that Barclays’ sizeable investment banking business is less reliant on interest income. Volatile financial markets are good news for investment banks, since they mean more trading and hedging activity.

“The scary days of March are now behind us, but volatility has remained high in the third quarter and that should help the bank’s trading desks.”

A message from the Editor:

Thank you for reading this story on our website. While I have your attention, I also have an important request to make of you.

The dramatic events of 2020 are having a major impact on many of our advertisers - and consequently the revenue we receive. We are now more reliant than ever on you taking out a digital subscription to support our journalism.

Subscribe to scotsman.com and enjoy unlimited access to Scottish news and information online and on our app. Visit https://www.scotsman.com/subscriptions now to sign up.

By supporting us, we are able to support you in providing trusted, fact-checked content for this website.

Joy Yates

Editorial Director