Debt levels soar for business as UK economy struggles to recover from Covid
February 8, 2021, 12:06 pm

Debt levels soar for business as UK economy struggles to recover from Covid

EY accountants forecast a £26bn rise in borrowing from banks this year.

Richard PartingtonMounting concern as firms borrow for ‘survival rather than growth’, figures from EY show

Britain’s economy is facing a lengthy recovery from the third coronavirus lockdown amid soaring levels of business debt after almost a year of economic turmoil caused by the pandemic.

Figures from the accountancy firm EY show British businesses took on debt at more than twice the normal average growth rate since the crisis began and are on course to have borrowed £61bn in total by the end of 2021.

Faced with prolonged lockdown restrictions at the start of the year as persistently high Covid infections delay a return to normal, EY forecast a £26bn rise in borrowing from banks this year – as much as £17bn more than in 2019.

The government announced last week that businesses struggling during the pandemic would be given more time to make repayments on state-backed loans. The new offer includes the option of paying sums back over 10 years rather than six, and allowing firms to choose to pay only the 2.5% interest. However, the scale of new debts taken on by firms could hold back Britain’s economic recovery, and lead to weaker investment if firms prioritise bringing down debt levels.

Anna Anthony, UK financial services managing partner at EY, said the “colossal amount” of borrowing was mainly being used to help companies survive, rather than to fund growth. “The prospect of some, if not many firms, not being able make the required repayments is concerning for all involved,” she said.

The warning comes as economic activity plunged in January by the most since the first wave of the pandemic. Business surveys from NatWest and the accountancy firm BDO show that tougher lockdown measures at the start of the year triggered a broad-based contraction in business activity.

Although companies remained optimistic about the outlook, reflecting progress in administering the Covid vaccine, and amid hopes for looser restrictions in the months ahead, demand for goods and services fell across the UK. NatWest said the biggest fall was recorded in Scotland, while employment levels also fell in all 12 regions of the UK monitored by the bank.

The BDO Output Index, which measures data from the UK’s main business surveys, fell to 70.44 in January, the lowest level in seven months on a scale where figures above 95 indicate economic growth. The gauge averaged 73.62 in 2020, well below the previous low of 83.28 recorded in 2009.

The government is drawing up plans for easing coronavirus restrictions in the spring that are expected to be unveiled before the chancellor, Rishi Sunak, uses the 3 March budget to announce support measures designed to kickstart the economic recovery.

However, manufacturers are preparing for a long-haul recovery, with half of firms in a survey by MakeUK expecting it would take until at least 2022 for them to return to full production capacity.

The lobby group said British industry needed support equivalent to the Marshall plan – aid paid by the US to western governments to help the economies of Europe after the second world war.

The survey of 186 industrial companies showed more than a quarter believed it would take a year or longer to return to normal trading. Stephen Phipson, the chief executive of MakeUK, said support measures at the budget and a plan for a longer-term strategic vision was needed.

Calling for the extension of the Treasury’s furlough scheme until at least September, as well as tax cuts to support business investment, he said: “We need an industrial strategy and vision on a scale not seen since the Marshall plan, which identifies new technologies and market openings that will benefit from enterprise-friendly policies on taxation, research and development, infrastructure and regional investment.”

source: Richard Partington

Levant

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BENEFIT, the Kingdom’s innovator and leading company in Fintech and electronic financial transactions service, held its Annual General Meeting (AGM) at the company’s headquarters in the Seef District.
During the meeting, shareholders approved all items listed on the agenda, including the ratification of the minutes of the previous AGM held on 26 March 2024. The session reviewed and approved the Board’s Annual Report on the company’s activities and financial performance for the fiscal year ended 31 December 2024, and the shareholders expressed their satisfaction with the company’s operational and financial results during the reporting period.
The meeting also reviewed the Independent External Auditor’s Report on the company’s consolidated financial statements for the year ended 31 December 2024. Subsequently, the shareholders approved the audited financial statements for the fiscal year. Based on the Board’s recommendation, the shareholders approved the distribution of a cash dividend equivalent to 10% of the paid-up share capital.
Furthermore, the shareholders endorsed the allocation of a total amount of BD 172,500 as remuneration to the members of the Board for the year ended 31 December 2024, subject to prior clearance by related authorities.
The extension of the current composition of the Board was approved, which includes ten members and one CBB observer, for a further six-month term, expiring in September 2025, pending no objection from the CBB.
The meeting reviewed and approved the Corporate Governance Report for 2024, which affirmed the company’s full compliance with the corporate governance directives issued by the CBB and other applicable regulatory frameworks. The AGM absolved the Board Members of liability for any of their actions during the year ending on 31st December 2024, in accordance with the Commercial Companies Law.
In alignment with regulatory requirements, the session approved the reappointment of Ernst & Young (EY) as the company’s External Auditors for the fiscal year 2025, covering both the parent company and its subsidiaries—Sinnad and Bahrain FinTech Bay. The Board was authorised to determine the external auditors’ professional fees, subject to approval from the CBB, and the meeting concluded with a discussion of any additional issues as per Article (207) of the Commercial Companies Law.
Speaking on the company’s performance, Mr. Mohamed Al Bastaki, Chairman BENEFIT , stated: “In terms of the financial results for 2024, I am pleased to say that the year gone by has also been proved to be a success in delivering tangible results. Growth rate for 2024 was 19 per cent. Revenue for the year was BD 17 M (US$ 45.3 Million) and net profit was 2 Million ($ 5.3 Million).

Mr. Al Bastaki also announced that the Board had formally adopted a new three-year strategic roadmap to commence in 2025. The strategy encompasses a phased international expansion, optimisation of internal operations, enhanced revenue diversification, long-term sustainability initiatives, and the advancement of innovation and digital transformation initiatives across all service lines.
“I extend my sincere appreciation to the CBB for its continued support of BENEFIT and its pivotal role in fostering a stable and progressive regulatory environment for the Kingdom’s banking and financial sector—an environment that has significantly reinforced Bahrain’s standing as a leading financial hub in the region,” said Mr. Al Bastaki. “I would also like to thank our partner banks and valued customers for their trust, and our shareholders for their ongoing encouragement. The achievements of 2024 set a strong precedent, and I am confident they will serve as a foundation for yet another successful and impactful year ahead.”
Chief Executive of BENEFIT; Mr. Abdulwahed AlJanahi commented, “The year 2024 represented another pivotal chapter in BENEFIT ’s evolution. We achieved substantial progress in advancing our digital strategy across multiple sectors, while reinforcing our long-term commitment to the development of Bahrain’s financial services and payments landscape. Throughout the year, we remained firmly aligned with our objective of delivering measurable value to our shareholders, strategic partners, and customers. At the same time, we continued to play an active role in enabling Bahrain’s digital economy by introducing innovative solutions and service enhancements that directly address market needs and future opportunities.”
Mr. AlJanahi affirmed that BENEFIT has successfully developed a robust and well-integrated payment network that connects individuals and businesses across Bahrain, accelerating the adoption of emerging technologies in the banking and financial services sector and reinforcing Bahrain’s position as a growing fintech hub, and added, “Our achievements of the past year reflect a long-term vision to establish a resilient electronic payment infrastructure that supports the Kingdom’s digital economy. Key developments in 2024 included the implementation of central authentication for open banking via BENEFIT Pay”
Mr. AlJanahi concluded by thanking the Board for its strategic direction, the company’s staff for their continued dedication, and the Central Bank of Bahrain, member banks, and shareholders for their valuable partnership and confidence in the company’s long-term vision.