Wait for this statistic to be misused

Coming to a propagandist near you:

In the three months to June, \”write-offs of loans to non-financial corporations\” almost tripled to £2.94bn, according to the Bank of England.

The only time the level of losses had ever come close was in the fourth quarter of 2009, as Britain was emerging from recession, when write-offs were £2.5bn.

My God! Disaster for Coleman!

Look, look, the economy\’s in the toilet, we told you so!

However, it coincided with a regulatory crackdown on \”forbearance\” – whereby banks vary the terms of a loan to allow struggling borrowers to limp on and avoid booking losses.

Ah. So the banks were bending over backwards trying not to write down, call in loans, now that conditions have improved a bit (??) they\’re being told to get back to proper, standard, banking practices.

My guess is, and it\’s only a guess, is that the forbearance would come in the form of ignoring loan covenants. It\’s pretty standard that a loan on commercial property will have some clauses about needing the property to maintain some level of equity. So that the loan to equity ratio doesn\’t fall below 90% or 80% or whatever.

If commercial property priecs fall then the company has to come up with more equity as it has breached such loan covenants. It might have absolutely no problem at all in servicing the loan: still got tenants in, they\’re still paying the same rent (rent reviews are only upwards in the UK). But falling prices have reduced the equity so they must refinance.

The bank of course has the option of ignoring this: hey, they\’re still paying the loan so why drive them into bankruptcy over the equity?

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