The state-owned British Business Bank has warned that its returns for the year ahead could take a hit if businesses default on loans amid the deteriorating economy.
The bank, which helps small businesses access finance and administered the bounce-back loan scheme during the pandemic, warned of a challenging few years ahead for smaller businesses that are likely to be affected by the economic downturn.
In particular, lending to start-ups and the smallest businesses could be more vulnerable to any impact of economic uncertainty as they often do not have collateral, it said.
This could lead to an increase in credit losses if more businesses default on their loans.
“There is a danger that credit and investment losses, including a large write-down of individual investments, could have a material impact on the bank’s ability to meet its return target in 2022/23 and/or its other objectives”, the bank said on Wednesday.
It added that rising interest rates, rising inflation, and pre-existing supply chain problems will mean that economic uncertainty persists.
“We may be entering a situation in which there is reasonably high employment, but with many people feeling worse off in real terms”, it added.
“Demand may also be weak, as businesses are still responding to supply challenges.”
The British Business Bank supported more than 96,000 smaller businesses with £12.2 billion of finance at the end of March this year.
It made an adjusted return of more than 18%, far exceeding its 00.6% target for the year, and its adjusted net operating profits reached £526.2m.
The government-backed bank led the provision of emergency finance schemes after the pandemic struck, including business interruption and bounce-back loans.
Up to 505,000 businesses that received a bounce-back loan could have permanently shut down in 2020 if it were not for the financial lifeline, according to analysis from London Economics and Ipsos.
However, the schemes were criticised for failing to curb potentially billions of pounds worth of fraud as thousands of new or dissolved companies illegitimately got hold of the loans during Covid.
The British Business Bank came under fire for its lack of robust checks in efforts to give out loans as quickly as possible.
The bank said that it had learned lessons from “scaling rapidly” to deliver the emergency schemes and that it is tightening its fraud checks.
Lord Smith of Kelvin, chair of the British Business Bank, said: “We know that things remain tough for many smaller businesses as they work to recover from the Covid-19 pandemic so the importance of both financial and non-financial support for smaller businesses should not be underestimated.
“Supporting smaller businesses in challenging and uncertain times is absolutely what the British Business Bank is for.
“The flexibility designed into the way we operate means that our role in supporting their access to finance can adapt to the prevailing economic circumstances, and we stand ready to do what is needed in both good times and bad.”
The bank’s chief executive, Catherine Lewis La Torre, earned £392,000 in the year to March, above her £297,000 fixed salary having met all the targets in her incentive package.