Reporting of bad and doubtful debts for loans made under government coronavirus loan schemes on Forms AL/BE/BT/ER/LN/PL
This statistical notice provides guidance to reporters about how bad and doubtful debts, and the potentially resulting guarantees received on loans made under the government coronavirus loan guarantees, should be reported.
The Bounce Back Loan Scheme (BBLS) was set up to help small and medium-sized businesses borrow between £2,000 and up to 25% of their turnover. The maximum loan available was £50,000. The government guarantees 100% of the loan and pays any fees or interest for the first 12 months. After 12 months the interest rate is to be 2.5% a year. The scheme has since been withdrawn, but there are still outstanding loans. Further details can be found on the Bounce Back Loan Scheme website.
The Coronavirus Business Interruption Loan Scheme (CBILS) and Coronavirus Large Business Interruption Loan Scheme (CLBILS) were set up to help large sized businesses and medium-sized businesses access loans and other kinds of finance. Under these schemes, the government guarantees 80% of the finance to the lender. The schemes have since been withdrawn, but there are still outstanding loans under both of the schemes. Further detail can be found on the Coronavirus Business Interruption Loan Scheme, and Coronavirus Large Business Interruption Loan Scheme websites.
The Recovery Loan Scheme was launched in April 2021 to provide further financial support to businesses as they recover from the pandemic. This scheme is similar to the CBILS and CLBILS in that the government guarantees 80% of the outstanding balance of the facility, while borrowers are liable for all interest and associated fees. Further detail can be found on the Recovery Loan Scheme website.
At a high level, the reporting guidance for statistical collections can be summarized in the following key points:
- For all forms, if a loan made under one of the government coronavirus loan schemes is recognised as a bad and doubtful debt, you should only report a provision and subsequent release, write-off, and recovery for the proportion of the loan that is not guaranteed for by the government.
- For all forms, in addition to the above, loans recognised as bad and doubtful debts should continue to be reported as an outstanding balance against the original borrower until such time as the government guarantee releases the outstanding obligation. At that point, the reduction in outstanding balance should be treated as an ‘other adjustment’ for an amount equivalent to the value of the government guarantee, in line with the definition of ‘other adjustments’ outlined in the Form LN definitions. The remainder of the reduction in outstanding balance should be treated as a write off.
- On Form PL, you should continue reporting interest received on these loans until written-off as described in the previous statistical notice on reporting of loans made under government coronavirus loan schemes on the Form PL (Statistical Notice 2020/06).
- On Form ER, any loan interest received from UK households and corporates should be reported as usual, but they should exclude any interest paid by the UK Government under the loan schemes or as guarantor of the loan under the scheme once it has been written-off.
Reporting of government coronavirus loan schemes specific to Form ER
At the point when the government coronavirus loan schemes were introduced in 2020, reporters of Form ER were advised that sectoral reporting of interest receivable should be consistent with the sectoral reporting on the equivalent balance sheet item, but should exclude any interest paid by the UK Government (which is the case in the first year for two of the schemes). This is different to the reporting requirements on Form PL on the treatment of interest paid by the UK Government under the schemes. The difference is driven by the intention of Form ER to capture loan interest received directly, and only, from UK households and corporates to gauge the extent of changes to interest rates observed by the borrower (e.g. pass-through of MPC Bank Rate changes) – this includes the impact on interest rates from the government coronavirus loan schemes.
In line with the reporting requirements for other forms, if a loan under the government coronavirus loan scheme is recognised as a bad and doubtful debt, any interest still received directly from the borrower should continue to be reported on the Form ER until it is written-off. Any interest paid by the UK government under the scheme as guarantor of the loan should remain excluded from Form ER.
Any queries regarding the Forms BT, BE, AL, LN, ER guidance should be directed to: DSD_MS@bankofengland.co.uk.
Reporting of government coronavirus loan schemes specific to Form PL
Coronavirus Large Business Interruption Loan Scheme (CLBILS), Coronavirus Business Interruption Loan Scheme (CBILS), and Recovery Loan Scheme
Reporting guidance:
- When a risk of loss to a loan guaranteed by CBILS, CLBILS, or Recovery Loan Scheme is identified, reporters should only provision for the 20% of the finance that is not guaranteed by the government. Therefore either PL20AA (specific provisions) or PL20AD (general provisions) would increase by up to 20% the value of the loan/provision.
- Correspondingly, only the amounts provisioned for and not guaranteed by the government should be reported as releases (PL20AB) or write-offs (PL20AE), or possibly as recoveries (PL20AC).
- From this reasoning, we would also only expect these amounts to be added to the stock of provisions (PL20B) and deducted from retained profits after provisions (PL21)
- For the remaining amount of the defaulted loans that are guaranteed by the government, these should not be reported on Form PL.
- Even after a loan has been provisioned for, as long as interest continues to accrue, the full amount of interest should be reported as described in previous statistical notice on reporting of loans made under government coronavirus loan schemes on the Form PL (Statistical Notice 2020/06).
Bounce Back Loan Scheme (BBLS)
Reporting guidance:
- As loans under the BBLS are fully guaranteed by the government, they should not be reported as provisions when a risk of loss is identified.
- Even after a loan has been provisioned for, as long as interest continues to accrue, the full amount of interest should be reported as described in the previous statistical notice on reporting of loans made under government coronavirus loan schemes on the Form PL (Statistical Notice 2020/06).
Any queries regarding the Form PL guidance should be directed to: DSDPLTeam@bankofengland.co.uk.