LONDON (Reuters) - Britain's banks hold enough capital to keep on lending and absorb the losses that are likely to arise due to the COVID-19 pandemic, the Bank of England said on Thursday.
Companies could suffer a cash flow deficit of up to 200 billion pounds, and lenders could suffer credit losses of less than 80 billion pounds, the BoE's Financial Policy Committee said in its Financial Stability Report.
"It remains the FPC’s judgement that banks have the capacity, and it is in the collective interest of the banking system, to continue to support businesses and households through this period," the report said.
"That said, the banking system cannot be resilient to all possible outcomes ― there are inevitably very severe economic outcomes that would challenge banks’ ability to lend."
But there would be costs to banks and for the wider economy from taking "defensive actions" such as scaling back on lending to boost their resilience, the report said.
To deplete capital ratios by more than 5 percentage points, banks would need to incur credit impairments of around 120 billion pounds.
"This would require events to have an economic impact worse than that seen from March onwards," the report said.
Britain left the European Union in January and transition arrangements end in December, with no new UK-EU trade deal in place so far.
"Most risks to UK financial stability that could arise from disruption to cross-border financial services have been mitigated, even if the current transition period ends without the UK and EU agreeing specific arrangements for financial services," the report said.