Since the outbreak of Covid-19 in the UK, there has been an increase in borrowers requesting a payment freeze. This is something that all banks and non-bank lenders have experienced. We are required to provide forbearance in the form of breathing space under existing FCA rules. We are always committed to looking after all our customers, both our borrowers and investors, and we have existing policies and procedures to manage forbearance. Most borrowers will resume paying and go on to repay their loan in full but some, unfortunately, will not. This has led to an increase in Expected Future Credit Losses.
As it is likely that the economic consequences of the lockdown and other restrictions will continue for some time, we have also used economic forecasts from specialists Oxford Economics in our calculation of Expected Future Credit Losses, and in view of the economic uncertainty, we have chosen to apply full weighting to their downside economic case.
The effect of the increase in Expected Future Credit Losses is that the Interest Coverage Ratio has gone below 100%. This means that while everyone’s capital remains fully protected (the Capital Coverage Ratio is 166%), not all future interest is. We are reducing interest, with the interest going to the Provision Fund, to bring the Interest Coverage Ratio back to 100%.