Britain's biggest banks pay off £54bn in three months

No wonder Barclays can afford to cough up for PPI claims: BoE figures show our banks are repaying their state-backed loans well ahead of schedule...

by James Taylor
Last Updated: 19 Aug 2013
Some positive news from the banks for once: according to the Bank of England's latest Quarterly Bulletin, the UK's biggest lenders have already paid back £148bn of the £185bn they borrowed when the credit crunch was at its height - about six months ahead of the original repayment schedule. Although some think this could result in the banks charging us more to borrow their money, in a bid to protect their profit margins, it's got to be good news for the UK's economic stability if they're not all trying to refinance simultaneously in six months' time. Also this morning, Barclays said that it would offer a no-quibble refund (plus interest) to anyone who submitted a complaint about being mis-sold payment protection insurance before 20 April this year. If the rest follow suit, it might go some way towards mitigating the damage this sorry affair has done…

At the height of the liquidity jam, the banks were finding it nigh-on impossible to borrow money using their existing assets as collateral. So the Government basically stepped in as a guarantor, in a bid to get the market moving again. The final repayments aren't actually due until early next year; but the Bank said today that the banks have repaid another £54bn in the last three months, meaning that 'just' £37bn of the total is still outstanding.

That's surely good news, since the alternative was that lots of these banks would have to go and raise fresh funds on the wholesale market to pay the Government back - and if everyone did that at the same time, it could have been messy. The major downside for the banks is that in order to repay this debt, they're having to pay higher rates to attract wholesale and retail deposits. We don't know about you, but we can live with that (not that we've seen much evidence of the latter, admittedly).

Mis-selling PPI was of course one way the banks were able to prop up their profit margins in recent years, but that has well and truly come back to bite them. Thankfully, it seems as though they're finally starting to cotton on to the potential reputational damage; Barclays said today that it will compensate all customers who claimed before 20 April (the date of the relevant court ruling) as a 'gesture of goodwill'. It'll cost about £1bn - and some of the other banks involved, who will now be under pressure to follow suit, may have to shell out even more. But apologising and compensating those affected is the only way they can hope to start reclaiming the trust they breached so egregiously.

Incidentally, the other interesting revelation in today's Quarterly Report is that the Bank has started using a research tool that will be very familiar to most of us, i.e. Google. Apparently it thinks internet search data can shed some light on consumer spending and confidence; so, for example, the frequency of the search term 'estate agents' seems to track the fluctuations in average house prices quite closely. The wisdom of crowds, and all that...

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