Lenders 'underestimate' risks of consumer debt, says Bank of England

Lenders 'underestimate' risks of consumer debt, says Bank of England”

The Bank of England warned Monday of "a pocket of risk" in the rapid growth of consumer credit in the British economy, and is compelling lenders to hold an extra 10 billion pounds ($13.5 billion) in capital to cover themselves against potential losses.

"Growth of consumer credit remains well above the rate of growth in household disposable income", the committee said in a report on a meeting held September 20.

The Financial Policy Committee (FPC) said that while climbing debt levels do not pose immediate risks to the British economy, banks are in a more precarious position.

Although consumer credit represents only 11 percent of overall household debt, this asset class is disproportionately more likely to default in a downturn.

It said that while the quality of consumer credit has "improved significantly" since the financial crisis, lenders are using the wrong benchmarks.

The committee said lenders have placed too much weight on the recent performance of consumer lending in benign conditions, which has seen default rates fall. "As a result, they have been underestimating the losses they could incur in a downturn", the FPC added.

The Bank of England has warned that United Kingdom lenders are underestimating their potential losses on credit card and other unsecured loans to customers and is compelling them to hold an extra £10bn of capital to protect their balance sheets in the event an economic shock.

The extra £10 billion is small in the context of the £280 billion of core capital held by British lenders, but the Bank said it expected banks to take the greater risks into account in their future lending plans.

Under its latest stress test scenario for lenders the Bank said they would incur a 20 per cent los rate on consumer loans, worth around £30bn.

The Bank's stress test exercises are meant to measure how United Kingdom lenders would fare in an economic downturn and under hard market conditions.

The Bank of England has kept interest rates on hold at their post-Brexit low of 0.25% - but warned earlier this month that a rise is "likely" in the "coming months" if inflation continues to surge above its 2% target.

The experts at Threadneedle Street in London also said they were keeping an eye on the "risks of disruption" on Britain's financial services sector arising from Brexit.

Like this



25 September 2017
Rohingya extremists blamed after mass grave of Hindus found in Myanmar
The announcement could not be independently verified in an region where access has been tightly controlled by Myanmar's army. Unverifiable pictures of the mass grave have also surfaced.

25 September 2017
Game recap: New Orleans Saints 34, Carolina Panthers 13
Bell replaced Vaccaro at safety midway through a Week 2 loss to New England. "I'm calling for a burn of all Saints memorabilia!" That last number might be an exaggeration but it feels accurate. "I feel as if, where my mental frame was, I was ready to play".

25 September 2017
Did Donald Trump just flip Robert Kraft the bird?
When asked about one of his supporters speaking out, Trump said that he was all right with what the Patriots owner had to say. There is no greater unifier in this country than sports, and unfortunately, nothing more divisive than politics.

25 September 2017
Federer secures Laver Cup victory for Europe
But Federer bailed out Nadal with a comeback win over Kyrgios in a thrilling match to bring the competition to a close and earn the title.

25 September 2017
Gotham Asset Management LLC Acquires 920285 Shares of Intel Corporation
Moreover, Great West Life Assurance Can has 0.03% invested in DISH Network Corp (NASDAQ:DISH) for 172,039 shares. Martin And Communications Inc Tn has 0.66% invested in Intel Corporation (NASDAQ:INTC) for 63,659 shares.

25 September 2017
John McCain: Brain cancer prognosis very poor
There's always that.' You know, and - and I said, 'I can take it. "And then I think, cancer chose the wrong guy". Lab tests confirmed the diagnosis days later. "They said that the prognosis is very, very serious".

25 September 2017
McCain Says No to GOP Health Care Bill
As some of the most powerful forces in state and federal government bear down on her over the impending health care vote, Sen. It also cuts the ACA's unpopular individual and employer mandates and shifts the allocation of Medicaid dollars.

25 September 2017
Man City favourite admits he wants to sign new deal
Benjamin Mendy believes he can become the best left-back in the world after joining Manchester City . Everything is going well for me. "We both waited until the transfer window was over".

25 September 2017
Philippines accepts Malaysia's rejection of ASEAN statement
Aman disputes that the Chairman's statement, having disregarded its inputs, "was not based on consensus". The ministry said there were "extensive consultations" with Malaysia.

25 September 2017
London Mayor Sadiq Khan Compares Donald Trump to Islamic State
Khan said Trump's travel ban gave the "wrong impression" of Islam and was meant to sow distrust between Muslims and non-Muslims. However, Trump said the UK's invitation to Trump for a state visit, planned for next year, should be withdrawn.