Barclays warns negative interest rates could hurt its UK profits

Barclays Bank handed out 640,000 payment holidays to customers hit by Covid-19 restrictions and approved loans and support worth £25 billion.

But bosses warned that negative interest rates used to prop up the UK economy could hit its high street lending profits (which were ringfenced after the last financial crisis).

Chief executive Jes Staley declined to rule out bonuses for his employees this year despite being unable to pay shareholders a dividend due to the Bank of England’s Covid-19 rules.

Barclays results
Barclays results

He also said negative rates set by the Bank of England could have the potential to improve the economy in the longer term if it led to higher spending.

Mr Staley said: “Zero let alone negative interest rates are very tough for banks and puts pressure on bank profitability.”

He added: “You don’t want to see consumers avoiding a negative interest rate turn to cash, for example.”

The boss also explained that in countries where negative interest rates have already been introduced, Barclays’ large corporate customers have seen those charges to hold money in savings. “But we’re rather not be doing that,” Mr Staley added.

No bank branches will close on UK high streets due to the pandemic, although Barclays will continue shutting branches as part of cost cutting plans announced before Covid-19.

Barclays also revealed it waived £100 million in interest and fees for UK customers during the pandemic and provided the same amount in community aid packages.

A total of 9,800 Coronavirus Business Interruption Loan Scheme (CBILS) and Coronavirus Large Business Interruption Loan Scheme (CLBLS) payments were approved with a value of £3 billion. The loans are 80% backed by the Government.

Around 296,000 bounce back loans for small businesses, worth £9.2 billion, which are 100% backed by the taxpayer, were also approved, alongside £12.4 billion through the Covid Corporate Financing Facility (CCFF), operated by the Bank of England.

The huge support for UK businesses came as Barclays revealed income at the global bank increased 3% in the nine months to September 30 to £16.8 billion, with pre-tax profits of £2.4 billion, including £1.1 billion in the third quarter.

Profits increased in its investment division and high street lending over the three-month period as global economies recovered from the height of the global pandemic, it added.

Barclays said its preferred measure – Return on Tangible Equity (RoTE), based on profits from cash invested with the bank – increased to 5.1% in the three months to September 30.

However, the rise was greater in its investment division – hitting 10.2% – compared with its ring-fenced high street services, with a more modest 4.5%.

The UK division made a pre-tax profit of £196 million.

Mr Staley said: “In this historically challenging year for our customers and clients we have continued to provide huge support to help people through the social and economic impact of the Covid-19 pandemic.

“This remains a priority, alongside maintaining the financial integrity of the firm and keeping our colleagues safe.”