Why do UK banks seem so optimistic despite the cost of living crisis?

theguardian.com:

UK banking bosses gave off an unexpected air of calm when they released second quarter earnings over the past week, defying wider anxiety over the cost of living crisis and its impact on businesses and consumers.

Major high street lenders, including NatWest, Barclays, Lloyds and HSBC, largely shrugged off concerns over potential defaults linked to weaker economic forecasts, with most announcing fresh payouts for investors and instead releasing money they previously put aside for bad loans.

So why are banks so optimistic, given the intensifying squeeze on household finances? We take a closer look at what we learned over the second quarter earnings season.

Lenders were up-front about the impact that 40-year-high inflation was having on their poorest customers.

Lloyds said around 1% of its account holders were “really struggling to make ends meet”, while NatWest revealed customers on the lowest incomes were already edging into fuel poverty – defined as spending more than 10% of their earnings on energy bills.

However, banks said this was not resulting in a surge in defaults, since few of those vulnerable customers actually borrow from major high street banks. That may be due to the fact that they would not have qualified for those loans in the first place.

It means that, rather than putting put aside cash to bad debts, banks are able to take less costly steps to deal with the cost of living crisis, including referring struggling customers to consumer charities, or building online budgeting tools.

Banking executives said many customers are actually in a better financial position than they were before the Covid pandemic. That is due to a drop in spending during lockdowns, which helped borrowers pay off debts and built up savings.

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