Barclays takes $4.7-billion coronavirus hit as profits slump

British bank Barclays said on Wednesday, July 29, that 1st half net profits tumbled by two-thirds, as it set aside £3.7 billion ($4.7 billion, 4 billion euros) to deal with coronavirus fallout, and warned over a possible second wave.

Profit after taxation dived to £695 million in the 6 months to the end of June, compared with £2.07 billion in the same portion of 2019, Barclays said in a results statement.

And net profit tanked 91% to just £90 million in the 2nd quarter, when it took a £1.6-billion hit from pandemic turmoil – on top of the £2.1 billion it had set aside for the 1st quarter.

The cash should help Barclays weather the increased risks that customers may not be able to repay bank loans on the back of the coronavirus-induced recession.

The sharp economic downturn was sparked by the 3-month nationwide lockdown on March 23 which was not relaxed until early June.

‘Bridge to recovery’

“This has been a period focused on supporting our customers, clients, and the UK economy through the COVID-19 pandemic – providing the people and businesses that we serve with a bridge to recovery in every way we can,” said chief executive Jes Staley.

“Credit impairment charges increased to £3.7 billion in the 1st half due to the forecast impact of COVID-19.”

He added: “While the remainder of 2020 will be challenging, our diversified model means we can remain financially resilient and continue to support our customers and clients.”

Barclays meanwhile took the vast £3.7-billion charge despite assistance from the Bank of England (BoE) and UK government to help lenders boost lending and keep businesses afloat.

The impact of the coronavirus has been cushioned somewhat by emergency action from the BoE and other major central banks, which have together injected enormous amounts of liquidity – and thanks to separate government stimulus.

However, Barclays cautioned on Wednesday that the drastic measures were also indicative of the depth of the downturn following the emergency health crisis.

“The actions taken by the UK government and the Bank of England, may indicate a view on the potential severity of any economic downturn and post recovery environment, which from a commercial, regulatory, and risk perspective could be significantly different to past crises and persist for a prolonged period,” it warned.

“The COVID-19 pandemic has led to a weakening in gross domestic product (GDP) and an expectation of higher unemployment and lower house prices in the UK. These factors all have a significant impact on the modeling of expected credit losses by Barclays Bank UK Group.” 

Second wave fears

Turning to the outlook, the lender also noted widespread fears of a possible second wave of COVID-19 that could spark renewed lockdown restrictions.

“It remains unclear how this will evolve through 2020 – including whether there will be subsequent waves of the COVID-19 pandemic and whether and in what manner previously lifted restrictions will be reimposed,” the company said.

“Barclays Bank UK Group continues to monitor the situation closely.”

It added: “The economic environment remains uncertain and future impairment charges may be subject to further volatility depending on the longevity of the COVID-19 pandemic and related containment measures, as well as the longer term effectiveness of the Bank of England’s, UK government’s, and other support measures.” – Rappler.com