Major UK banks are set to remain profitable this year despite the effects of the coronavirus.

The BoE estimated that UK household deposits grew by £17bn ($22.29bn) a month from March to June, more than triple the rate in the previous six months.

Then, third-quarter results were best than expected for much of the banking sector.

After Barclays recorded a net-profit of £611m between July and September, HSBC and Lloyds upped them with profits of more than £1bn each, and NatWest £355m.

These relatively upbeat reports are in no small part thanks to the government financial support schemes for businesses and self-employed people during coronavirus.

Banks can obtain the government funds at near-zero percent interest, offering them a nice spread on loans for which the government has agreed to cover losses.

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Government relief

The reliance on state-guaranteed loan schemes to get emergency support to business has allowed banks to profit from new streams of interest payments.

Meanwhile, the Bank of England (BoE) has cancelled stress tests and putting much of its routine supervisory work on hold.

The BoE has also addressed banks’ concerns over the introduction of the new accounting measure IFRS9 which could force banks to set aside money to cover loans before they actually started to default, thereby, in the present crisis, potentially using up capital released by central banks responding to the coronavirus pandemic.

The largest five UK banks’ 3Q20 results showed resilient asset quality and capitalisation, as well as pressure on pre-provision earnings.

Cashing in on the mortgage boom

Mortgage lenders have reported stronger-than-expected profits after cashing in on a surge in demand for home loans. Lending rose £3.5bn in Q3 after bank processes highest number of applications since 2008.

Lloyds’ chief executive, António Horta-Osório, said demand had risen for larger homes outside city centres, and consumers were saving more of their earnings for home purchases as they were spending less on going out.

The bank is expected to profit from further demand in the final three months of the year. “We already know that this strong mortgage growth in Q3 is going to accelerate into Q4 and we are absolutely on it,” Horta-Osório said.

The expected “tide of bad loans” that did not rise

Credit losses at U.K. banks could be “somewhat less” than expected, the Bank of England said in August.

The welcome news came after the six biggest banks led by HSBC had set aside billions of pounds in provisions to cover potential losses this year.

But loan impairment charges (LICs) amounted to £1.9bn in 3Q20, a fraction of the £9.1bn reported in 2Q20. As a result of these reduced charges, banks reported modest but positive earnings and profitability (an aggregate 1.4% pre-tax return on risk-weighted assets, RWAs).

2020 LICs at Lower End: Based on the banks’ guidance, cumulative LICs for the five largest UK banks were on track to land at about £20bn for 2020, as of their 3Q20 results announcements.

This is at the lower end of the £20bn to £28bn ranges extrapolated from banks’ prior guidance, and well below indications in the Bank of England’s regulatory scenario analysis in May.

Fitch Ratings expects additional LICs to be manageable and still well within the initial ranges, helped by additional government support measures.