Banks have detailed the steps they will take to help small businesses or individuals affected by the coronavirus outbreak.

NatWest, the UK’s largest small business lender, said on Monday it would pay £ 5 billion to support small businesses, in particular to provide working capital support. There will also be loan repayment holidays for small business borrowers and the provision of temporary emergency loans at no cost.

It was followed today by Lloyds Banking Group, which said it will provide financial support worth £ 2 billion, which will include the removal of arrangement fees for new overdrafts or increases in overdraft limit and, “in certain circumstances”, the granting of reimbursement holidays to companies “most impacted”.

There were also actions taken that were not officially announced. Other lenders, including Barclays and Santander, have reportedly contacted thousands of small business clients over the past two weeks to ask them what their cash flow looked like before making emergency funding available.

Banks also began today to give details of support for residential customers potentially affected by the outbreak, for example, those experiencing a drop in income or unforeseen expenses or bills to pay.

RBS, which owns NatWest, said borrowers could defer mortgage and loan repayments for up to three months and waive early closing fees on fixed savings accounts and offer refunds on fees. cash advance on credit card. Other lenders are expected to follow suit.

The measures, in particular those which help SME customers, are in some ways reminiscent of the forbearance measures introduced by the UK banking sector during the 2008-09 financial crisis.

And the measures for personal banking customers in particular – although RBS, soon to be renamed NatWest Group, will be the only one to have announced specific details so far – also echo what has happened in the past. countries affected by the crisis. Italy, where all mortgagees were offered a payment holiday.

There are few observations to be made on these measures.

The first is that the banks are much more proactive than they once were. Following the financial crisis, during which the reputation of the entire industry was damaged, banks are quicker to take the lead and provide emergency assistance to small businesses and individuals when ‘they need it. The response to the coronavirus outbreak follows an equally swift response to recent flooding across the country. It should be noted that there has been less criticism of the banking and insurance industry from flood victims than there has been, say, from politicians.

A second observation is that the measures first announced by UK Finance last week and worked out by RBS / NatWest and Lloyds over the past 48 hours appear to be part of a larger package of support for small businesses and households.

The Bank of England was quick to welcome UK Finance’s initiative and Rishi Sunak, the new chancellor, is expected to announce in his budget tomorrow measures to help companies suffering from cash flow difficulties due to the coronavirus epidemic.

This could well include a change to HMRC’s Time To Pay system that, on a case-by-case basis, allows businesses to pay their previous year’s tax bill in installments rather than all at once. The system recently gained attention when in January it was extended to the since collapsed airline. Flybe. The Bank of England’s monetary policy committee, which is due to meet on March 26, is also expected to cut interest rates significantly at its next meeting or sooner.

Third observation, the actions carried out by banks are also motivated by pragmatism. Banks aren’t charities – but the last thing lenders want is perfectly viable small businesses to be bankrupted for a few missed loan payments. Allowing customers to skip a few loan repayments can hurt the profitability of short-term lenders – but that’s the lesser of the two evils when the alternative is a customer goes bankrupt and the bank only gets part , or none, of a loan that they extended to that customer.

It is interesting to note that the measures taken in this regard are similar to those of China, where the COVID-19[female[feminine the virus installed itself first. There, in order to avoid an increase in corporate defaults, authorities actually ordered lenders to offer forbearance until June.

Banking regulators in Europe will have a key role to play in this regard and, in particular, if abstention becomes widespread.

Under the current rules, if the term of a loan is extended, the lender is required to reclassify that loan as underperforming. The lender may then be required to set aside more capital against that loan. Likewise, any delay of more than 90 days in paying off a debt forces a bank to classify the borrower as in default and the loan as non-performing, also forcing the lender to put in more capital.

There is therefore a role to play for banking regulators. Giovanni Sabatini, managing director of the Italian Banking Association, today called on regulators to provide temporary relief to banks in this regard – saving them, in extreme circumstances, from having to raise new capital in response to a big wave of defaults.

Other forms of relief in the banking sector can also be foreseen. In this country, the Bank of England is set to reverse a recent increase in the so-called “countercyclical capital cushion” – an additional capital cushion with which banks can absorb losses. The bank’s financial policy committee increases the cushion when it estimates that risks are building up in the system and raised it from 1% to 2% in December.

Monday violent clearance sale on the stock markets fear that another financial crisis is brewing.

Yet there are two key factors that are different – a positive and a negative.

The good news is that, thanks to the actions of governments and regulators like the Bank of England over the past decade, banks are better capitalized than they were during the crisis. The bad news is that many companies have taken advantage of ultra-low interest rates to prepare their balance sheets and are in many cases more in debt than in 2007-08. This particularly applies to US shale oil producers – who face a slump in their profits following the instigation of an oil price war by Saudi Arabia.

This is why forbearance for small businesses and households, to help them get through the coronavirus epidemic, may not go any further.