Mid-sized banks cope Covid in UK, but warn of pain ahead

Tuesday 12th May 2020 16:00 EDT

The adverse effect of the Covid-19 pandemic has forced a large number of mid-sized UK banks to tread cautiously. Though the banks have reported steady deposits and demand, they have warned that it was too early to assess the long-term damage of the outbreak to their businesses.

The lockdown has brought the British economy to a near halt, prompting bigger banks to set aside provisions for loan losses recently in case businesses and consumers struggle to pay them back.

Virgin Money registered loss after setting aside 232 million pound ($289 million) provision for bad loans and likely defaults due to the pandemic. However, it reported a capital buffer of 13% beating market expectations. Beating current market condition, another financial institution OneSavings reported steady net loans and retail deposits in the first quarter and an impressive 2.66% net interest margin - an indicator of underlying profitability.

Metro Bank could not reassure its investors with marginal quarterly trading update. The bank reported a marginal decline in lending with a 77 million pound rise in total deposits. The bank said it was difficult to predict with any certainty how the pandemic affect its operations it will update in due course.

"Metro's limited Q1 trading update may be a hostage to fortune in terms of what it does not disclose as opposed to what it does," Jefferies analyst Joe Dickerson was quoted as saying. Unlisted Co-op Bank reported a further quarterly pretax loss of 27 million pounds but said this was in line with company expectations. Citing a lower capital buffer compared to its peers, analysts had been concerned that Virgin Money might need to raise additional capital, but a common equity tier 1 ratio of 13% was welcomed by analysts as ‘a big positive’.

Virgin Money chief financial officer Ian Smith said the bank still had "a very substantial buffer" to the regulatory requirement of 10%.

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