UK banks park £1.3bn to cover bad loans as recession looms

The provisions, the biggest since the onset of the pandemic, took the shine off what might have been a strong set of earnings

Shares in NatWest closed 7.5% lower on Friday after the firm’s profit fell short of estimates. Stock picture: Matt Crossick/PA

Some of the UK’s biggest high street banks are bracing themselves for trouble.

Barclays, Lloyds Banking Group, and NatWest, have together put aside nearly £1.3bn (€1.5bn) to cover bad loans, earnings reports this week showed. HSBC, which makes most of its money in Asia, also set aside €200m “in respect of an uncertain UK macroeconomic outlook”. 

These provisions, the biggest since the onset of the Covid-19 pandemic, took the shine off what might have otherwise been a strong set of earnings. Interest rate rises swelled returns on loans and ended more than a decade of vanishingly small margins for retail banks. Rivals in Europe were more wholeheartedly positive about the effects of rates this quarter. 

Shares in NatWest closed 7.5% lower Friday after the firm’s profit missed estimates — due partly to the impairment charge — and it warned of a worsening economy. It’s the biggest one-day share price decline for NatWest since March 2020, in the early days of the pandemic.

“The market is not in the mood to be surprised,” said Fahed Kunwar, an analyst at Redburn. 

It was a different story among continental European banks, which mostly drew cheer from central bank rate increases. Deutsche Bank delivered its best quarterly profit in more than a decade earlier this week and said there was upside to its full-year guidance even as Germany faces an energy crunch. The results echoed the performance of Switzerland’s UBS, while Banco Santander also beat expectations.