BoE: Banks' Govt Loans 'Repaid Rapidly'

The latest news by Bank of England (BOE) has stated that the banks in britain are repaying loans rapidly. The banks are in much stronger position then previous days.

According to the report, from the borrowed amount of £185bn, since the financial crises in 2007, UK banks has repaid near about £148bn. The loans were taken for a term of three years and are due for their final repayment in early next year.

The news is despite majority of the banks has failed to meet the target (Project Merlin) of helping small business for providing the SME loans to them.

The Bulletin shows that in last three months (February to May) the banks has repaid near about £54bn of government loans.

Santander UK, Lloyds Banking Group, Barclays, Royal Bank of Scotland and HSBC has made agreement with the Government to increase its loans to small and medium enterprises (SMEs) to a sum of nearby £76bn this financial year.

But the first quarter data reports for lending, presented a different picture. The banks were £2.2bn short on the SME target of £19bn in the first three months of the year.

FSA warns against pension loan schemes

In a recent news the Financial Services Authority (FSA) has raised a warning over the overcharging pension loan schemes offered by the different financial groups which access around 50% of the pension funds as cash.

This issue has been in notice due to the excessive promotion from companies offering loans against the pension funds.

The FSA has seen examples loans ads made to occupational pension schemes stating that people can take loans upto 50% of their pension funds.

The occupational schemes fall under the control of The Pension Regulator (TPR) and FSA said that the personal pension loans scheme falls under its regulations.

Generally the companies offering the personal pension loans take control of the pension funds and use them for the separate corporate bonds. The company then grant loans against those issued bonds and transfer half the amount as cash.

The FSA has recommended consumers to repay the full amount before retirement as because this will give them better future stability and a much more secured view for rest of your life. A joint team of different government agencies like FSA, TPR and HM Revenue and Customs (HMRC) will work together to gather more information on these kind of activities and find a way to bind it against law.

Sale on Loans- bigger is better

In the current business situation, due to rising competition and falling demand in debt market bank and financial institutes have started new ways to attract more people to apply for loans. The leading institutes mainly Barclays, Sainsbury’s finance and Nationwide Building Society has launched new loan @ 6.9%, 6.8% and 6.7% respectively. Some of the schemes are offered to the existing client base and/or for a limited time period.
For the first time loans are offered at lower than 7% rate. The rates lowered are mainly to aim customers struggling for payoff their previous debts. Financial institutes believe that the borrowing has been started to revive and the financial institutes are entering back in unsecured loans business. In past five years the average loans raised has fallen from 9.74% to 9%. But in April the loan has surged from a growth rate of 2.2% to 15.58%, highest ever jump in last five years.
The raise in loan is due to the institutions giving unsecured loan, rather than the conventional secured after the global crises. The sudden growth was attributed to the fact that creditors are aiming on loan rates for more advances, due to the huge competition in the financial market, and subsidizing these by charging higher rates to those borrowing lower amounts.

Europe’s First Covenant-Lite Loan

In UK the private equity are playing a major role in lending loans to firm who wants to make a buyout through the means of leverage ( also known as Leveraged buyout or LBO.) big industrist have announced and raised huge cash to be given to companies seeking LBO funds. But to the contrary the firms in UK are not in a mood to make new acquisitions and build assets. The latest reports published by standards and poor’s leverage commentary and data, it is shown that the loans raised is much higher than loans being applied for.

The fund managers are finding it tough to find firms seeking loan. They have started new measures to supply loans in the economic market. The interest rate offered on such loans is just 5% which is same as the interbank offer rate on a seven year payment terms. There is a surplus of fund available with the leveraging companies to drive in the economy but the fund seekers are very limited. At the moment it’s seen as the investments have been put on hold as an option by the country. The news is following that Apax has delayed its payment of 50 million pounds as the dividend, until the Trader Media’s leverage falls to less than five times.

The data from Cambridge, Massachusetts as per EPFR Global show that the Inflows of the funds specifically to loans and floating-rate debt has risen to $8.5 billion in this financial year, compared to $1.7 billion for the same duration in preceding year. Companies like Advent International Corp., EQT Partners AB, Bain Capital and few more has reduced interest on LBO loans.