By Iain Withers

LONDON (Reuters) – HSBC has opted out of an industry-wide plan for collecting unpaid emergency COVID-19 business loans, in a blow to efforts by other banks to team up to limit any reputational damage if firms struggling to repay are treated unfairly.

Reuters reported in December that only 10 of 23 lenders that have granted ‘bounce back’ loans (BBLs) had at the time joined the body, with most smaller ones opting out believing it did not offer value for money.

HSBC told industry body UK Finance, which is setting up the central body, this week that it would not be joining, a source with knowledge of the matter told Reuters, after a decision by senior HSBC managers in recent weeks.

Major banks have been toiling for months to set up a co-ordinated system for collecting unpaid BBLs, once the 45 billion pounds ($62 billion) of state-backed funds granted to small businesses with limited checks come up for repayment from May.

Lenders including NatWest and Lloyds have argued for a consistent approach to help cope with defaults and avoid a re-run of past mistreatment scandals that caused deep reputational damage and mistrust after the financial crisis.

The source said HSBC had decided to set up its own system as it wanted to closely manage any commercial and reputational risks in-house rather than fully outsource the work.

The bank had not ruled out joining at a later point but was highly unlikely to before launch, the source said.

“We always strive to ensure fair and consistent outcomes for our customers and will adhere to the principles set out by HMT by developing our own recoveries process. We remain in dialogue with UK Finance, BBB, HMT and other lenders,” an HSBC UK spokesman said.

UK Finance was not immediately available for comment.

(Reporting by Iain Withers; Editing by Alexander Smith)