Brokers react as lender sets aside £1.2 billion for credit impairment charges
Barclays reported a hefty 14% fall in full-year profit before tax in 2022, following a substantial hit from a trading blunder in the US, resulting in litigation charges of £1.6 billion.
One of the UK’s biggest lenders, Barclays said its 2022 profit came in at £7 billion, down from the £8.2 billion in the previous year.
The financial giant also announced a full-year net profit of £5.02 billion for 2022, with fourth quarter attributable profit at £1.04 billion. Pre-tax profit for the final quarter of 2022 was £1.31 billion.
Barclays reported a 14% fall in full-year pretax profit as earnings were hit by surging costs, a collapse in deal fees and multi-million dollar fines relating to an administrative blunder https://t.co/dEnSgX0PQs pic.twitter.com/OkDKTxcKZc
— Reuters Business (@ReutersBiz) February 15, 2023
According to its financial statement published on Wednesday, Barclays is also setting aside £1.2 billion to cover potential loan losses.
“For Barclays to set aside such a significant sum for loan losses isn’t surprising, as towards the end of 2022, I was seeing a higher number of applicants with defaults, whether they were on energy bills, mortgages or other loans or finance agreements,” Sofia Jones, managing director at London-based independent mortgage broker Penny House, commented.
“The immense strain on households is likely to feed through during 2023, especially as people come off ultra-low fixed rates, and the banks are preparing themselves accordingly.”
Gaurav Shukla, mortgage adviser at London-based broker Home Me, added that he anticipated that the number of mortgage defaults would rise this year, unless the FCA relaxes its criteria around interest-only mortgages for existing customers to ease the monthly payments, at least until rates decrease further.
“Some customers have seen their payments double in the past couple of months and there will be more,” Shukla pointed out. “It won’t just be mortgages that are affected but other credit commitments as there is so much less disposable income. It’s not all bad as mortgage rates are reducing for longer term borrowing, so we may not see as many defaults as first predicted.”
Lewis Shaw, founder of Teesside-based mortgage broker Riverside Mortgages, said that Barclays setting aside large tranches of capital to cover possible losses should be “a shot across the bows for the policymakers in Threadneedle Street.”
“Inflation has peaked, we’ve narrowly dodged recession and it feels as though, if the MPC took the right decisions, we could avoid forcing thousands of people into default,” Shaw stated. “We’ve already started to see an increase in unsecured late payments, which eventually bleeds up to the mortgage.
“This is the time to wake up and smell the coffee. Mortgage arrears are a lender’s kryptonite, so if downsizing is the best way to get finances on track, then get on with it sooner rather than later and don’t bury your head in the sand.”
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