Barclays’ pre-tax profits plunged by 75% in the second quarter of 2020 after the bank put aside another £1.6bn to cover bad debts in preparation for a wave of defaults caused by the coronavirus crisis. The second-quarter provision was more than the £1.4bn analysts had expected and brings its total credit impairment charges to £3.7bn for the six months to June. It is also three times the £480m charge it logged last year. Meanwhile, the Spanish lender Santander put aside €3.1bn (£2.8bn) to cover potential Covid-19 loan losses, including £145m relating to the UK. It also slashed €6.1bn from the value of its UK business as part of a €12.6bn impairment charge. This pushed the bank to an €11bn loss in the second quarter – the first loss in its 163-year history. Barclays said its latest provision reflected a forecast deterioration in some parts of the economy, including a prolonged period of higher unemployment in the US and UK. However, this has been partially offset by the impact of government and central bank stimulus measures. The bank’s group financial director, Tushar Morzaria, said economic models were pointing to a relatively shallow recovery. “We’re not assuming a very sharp snapback.” He said the bank had “quite significantly” increased provisions for potential defaults in high-risk sectors such as airlines, retail, hospitality and transport, which have been hit hard by the pandemic and subsequent travel restrictions. Barclays said its total exposure to those sectors was £20.7bn. The total loan loss provision pushed pre-tax profits down by 75% to £359m for the three months to June, compared with £1.5bn in the same period last year. Analysts had been expecting profits of £491m, according to consensus estimates. Barclays’ net interest income – which measures how much the bank earns from loans minus what it pays on deposits – tumbled by 20% to £1.9bn after the Bank of England slashed interest rates to record lows of 0.1% in March. However, a strong performance by Barclays’ investment bank helped prevent a sharp fall in total income, which was down 4% year on year to £5.3bn. While Barclays said it expected lower loan loss provisions in the second half of the year, it warned that the next six months would be difficult. “Given the uncertain economic outlook and low-interest-rate environment, the second half of the year is expected to continue to be challenging,” the bank said. Barclays said its capital buffers – which ensure the bank can absorb major losses – were strong, but its chief executive, Jes Staley, struck a cautious tone. “Though we will remain well capitalised and ahead of our minimum requirements, we may experience stronger capital headwinds in the second half of the year,” he said. However, Staley said the bank’s risk and exposure levels were very different from those during the 2008 financial crisis, and meant it could play a very different role in the recovery. “Our hope is to be a firewall in the economy recovery and in dealing with the Covid-19 pandemic; it’s much different than what happened with the banks some 10 years ago,” he said. Barclays has so far extended 600,000 payment holidays to customers affected by the pandemic and provided £7.7bn worth of government-backed bounce back loans and a further £2.5bn in coronavirus business interruption loans. However, Staley said demand for emergency funding and payment breaks had “slowed markedly” in recent weeks. The bank is now gearing up to help businesses raise funds on financial markets, a trend that could further benefit its investment bank. “The financial markets are increasingly open,” he said. “So if you’re a company and you’ve got some financial challenges and you’re in the leisure sector or the travel sector, you can go out and raise new capital in the public markets. That’s probably one of the greatest things that we can do financially to provide financial security for these corporates.”