By Lawrence White
LONDON (Reuters) – Does a cancelled gym membership spell financial disaster?
That is the type of question British banks are asking as they try to work out whether borrowers owing some 75 billion pounds ($96 billion) in home loans will be good for it when a payment holiday, introduced when the coronavirus crisis first hit, ends.
Lenders are scouring current account transactions, credit card spending and trends in Internet searches for clues about customer finances as part of a wider effort to understand the damage to their portfolios from the pandemic.
The once-in-a-lifetime mix of economic shutdowns, unprecedented government support and an uncertain path to recovery have upended old risk models, based on historical data, necessitating a more dynamic, forward-looking way of analysing lending risk. The searches involve pouring over anonymised data and are a way of surveying overall risk rather than individual customer habits.
The stakes are high: underestimate the risks and bank bosses and shareholders could be in for a nasty jump in losses, overestimate them and banks could rein in lending when it is needed most.
Executives at Britain’s top banks say calculating the hit to loans, from mortgages to corporate debt, is the biggest risk management challenge they have seen since the 2008 crisis.
“This time there is economic volatility beyond what we have ever seen, there is unprecedented government support, and to try and model it all with 100% accuracy is impossible,” said Matt Waymark, director of finance at NatWest Group <NWG.L>.
Some 300 billion pounds in payment breaks were granted on British mortgages, part of a series of measures aimed at propping up households hit by the virus, and around 70-80% of those have resumed payments, bankers and analysts told Reuters.
That leaves nearly $100 billion outstanding at a time when