Big banks’ £5bn loan windfall to boost dividends

Britain’s five biggest banks may be in line for a £5billion windfall that could help to boost dividend payouts later this year. 

Barclays, HSBC, NatWest, Lloyds Banking Group and Standard Chartered stashed away billions of pounds in case customer loans turned sour during the pandemic. 

But the chief executive of one major lender told The Mail on Sunday that far fewer customers had defaulted or missed payments on their loans than had been forecast. 

Far-sighted: Barclays, HSBC, NatWest, Lloyds Banking Group and Standard Chartered stashed away billions of pounds in case customer loans turned sour during the pandemic

The executive said banks could start to claw back some of these provisions later this year, freeing up more money to pay dividends. 

Alastair Ryan, head of European banks strategy at Bank of America, said about £20billion was set aside for possible bad loans last year. He estimates that nearly a quarter would ‘likely’ be clawed back before the end of the year. 

Omar Keenan, an analyst at Credit Suisse, said the Big Five UK-listed banks are ‘currently carrying about £5billion more in provisions than their current economic projections strictly say they need’. 

Analysts expect releasing the money will boost bank profitability and help to increase shareholder payouts to as much as £7.6billion this year – close to 2019 levels. 

The Bank of England will update the City within weeks on whether banks can pay out dividends and buy back their shares without limits on the amount they can dish out. 

The central bank stopped lenders from dishing out dividends last March so they could shore up their balance sheets. It relaxed the rules in December, but left restrictions in place. 

A top bank chief executive told The Mail on Sunday: ‘In terms of late payments and loan defaults, there’s been virtually nothing. This is across the industry. It’s even quiet in comparison with pre-Covid. 

‘We’ve got more cash on our balance sheet than we’ve ever had.’

However, he warned that ‘there’s a long way to go’ because the end of the furlough scheme in September ‘could become an issue’. 

Some banks bought back shares and resumed dividends earlier this year in respect of 2020, but await clarity from the Bank of England on the extent of payouts this year. 

Gary Greenwood, analyst at Shore Capital, said he would be ‘very surprised’ if banks were not allowed to pay more dividends. 

Russ Mould, analyst at investment site AJ Bell, said: ‘The Big Five are now expected to distribute £7.6billion in 2021. If that is achieved, it would be the highest since the £13.3billion peak of 2007.’