Regulator warns of long-term impact of zombie firms crisis

Tim Wallace
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LOW INTEREST rates are propping up firms that will never pay off their debts, prolonging their pain rather than offering them real help, the new Financial Conduct Authority (FCA) warned yesterday.

Banks have increasingly offered more lenient terms to businesses, restructured their debts or rolled them over to cope with the weak state of the economy.

But these new zombie firms are building problems for both banks and themselves, the report warned.

“For lenders the sustainability of forbearance strategies could be challenged in a prolonged period of economic stress or funding pressure,” the FCA said. “This could lead to poor treatment of consumers if there is a sudden or unexpected change in the terms of the strategies being offered.”

The FCA warned that forbearance on mortgages is unlikely to help solve households’ underlying financial woes, while switching to an interest-only mortgage may build up problems for the future.

The report also estimates there are up to 630,000 households in negative equity, particularly focused in northern regions.