Banks told to help save struggling companies from collapse

Lenders told not to penalise customers if they exceed overdraft limits or miss loan repayments

Itsu is one if hundreds of chains forced to shut their doors amid the coronavirus outbreak
Itsu is one if hundreds of chains forced to shut their doors amid the coronavirus outbreak

Rishi Sunak has urged banks to do more to save struggling companies from collapse, firing warning shots at a sector that is on the frontline of the financial response to the pandemic. 

Bank chiefs have been sent a strong message to keep lending to companies deemed viable before the coronavirus crisis amid growing concern for UK businesses as the country goes into lockdown. 

In a letter sent by the chancellor as well as Bank of England governor Andrew Bailey and Financial Conduct Authority boss Chris Woodard, banks were also told not to damage customers' credit ratings if they exceed overdraft limits or miss a loan repayment.

The trio said that while they appreciated the efforts banks had put in so far, they added: “We cannot stop there.”

The call for further action comes amid complaints from company bosses struggling to keep their businesses afloat. 

Mike Cherry, chairman of the Federation of Small Business, said feedback he was getting indicated that banks “are not being as cooperative as they should be”, meaning the letter marked a "hugely important intervention from those at the very top of our public financial institutions".   

A number of concerned small business owners have told The Telegraph that their banks had been unresponsive this week as they tried to access a crucial emergency loan scheme launched on Monday. 

John Cronin, a banks analyst for Goodbody, said there had been “multiple reports of banks and building societies struggling to maintain credit provision to businesses” and examples of long delays and banks only dealing with existing customers. 

The chancellor's letter urges banks and building societies to take “all action necessary” to ensure the emergency measures outlined by the government “are passed through to businesses and consumers”.   

Lenders have already introduced a string of measures to help struggling customers, including introducing mortgage and loan repayment holidays, but have been swamped with coronavirus-related queries in recent weeks, sparking concerns about delays. 

"No doubt many are overworked and fielding hundreds of calls, but we need to see the sentiments expressed in this letter filtered down to the frontline of our banking industry,” said Mr Cherry. “Without sufficient support from lenders, this lockdown could damage our small business community beyond repair."   

In an attempt to stop closures, the Institute of Directors has called on the Government to introduce emergency insolvency measures to prevent widespread company collapses, while others warn they need rescue packages immediately to pay staff. 

Julian Metcalfe, the boss of Asian-inspired chain Itsu and co-founder of Pret, urged ministers to speed up the delivery of its rescue package to businesses, warning that Itsu could struggle to pay staff if the support is not delivered within a week.

Itsu has closed all its outlets following government advice but was continuing to pay staff using bank loans.

Mr Metcalfe said: "They've [the Government] been very fast and they've done a lot very quickly, but they need to continue with that pace because so many thousands of people are losing their jobs, it's terrifying.

"We will continue to pay everyone because we just believe it's our duty. But it's very scary because it obviously puts us in an extremely precarious situation. We are borrowing money to pay our staff, borrowing tonnes and tonnes of money."

Itsu boss Julian Metcalfe

Kate Nicholls, chief executive of UK Hospitality, said: “All companies in hospitality and leisure are caught in an impossible position whereby they need to make critical decisions about funding pay to colleagues, while enduring a period of zero income and without the certainty of when the promised government help will arrive.

"Confirmation of when this scheme will launch into action and cash will flow into businesses so that they in turn can pay their teams, and fully participate in the recovery when the virus subsides and stability returns, would be enormously welcome.”

Meanwhile, the competition watchdog said it would not penalise companies that temporarily cooperate with rivals to address shortages caused by the Covid-19 outbreak if doing so was clearly in the public interest and would help consumers. 

The Competition and Markets Authority warned that the new rules were not a "free pass" for conduct that could harm consumers, including coordination that goes beyond what is required to address critical problems or continues for longer than necessary. The move will allow supermarkets faced with high demand and staff shortages to pool staff, delivery depots and vans to keep shelves stocked.