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Banks warned against 'complacency' on loans

A top official at the Bank of England has vowed it will “plug” any risk to banks from reckless lending through further measures, as it frets over soaring levels of consumer credit.

Executive director of financial stability, Alex Brazier, told an audience in Liverpool the Bank would have to respond if lenders are found to be repeating mistakes of the past – warning against a “spiral of complacency”.
He said: “We have already, in recent months, taken steps to strengthen banks’ defences against losses by raising the capital buffers they are required to hold on all their lending.
“And to make sure this defence line is kept robust in the face of rapid consumer credit growth, we are accelerating this year’s test of banks’ consumer credit loans.
:: Bank orders lenders to prove consumer credit protections

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“By September, we will have assessed whether the rapid growth has created any small gap in the line. If it has, we’ll plug it.”
The Bank is particularly worried about a 10% annual surge in unsecured consumer credit – things like credit card debt and car finance – at a time when price growth, inflation, is outpacing earnings growth.

The hit to spending power is largely a consequence of the Brexit vote, with the collapse in the value of the pound making imported goods and services more expensive and companies nervous to invest.

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While the Bank is concerned about banks getting out of their depth again – damaging the economy as seen in the wake of the financial crisis – it is also worried that any rise in interest rates to combat higher inflation or a new financial shock will push many families over the edge.
UK banks have been more keen to lend as record low rates take a toll on profits.
However, there has been a recent sign that lenders are taking a more responsible attitude.
A Bank of England survey released a fortnight ago suggested borrowing rules were being tightened, with offers that allow consumers to transfer balances interest free being scaled back.

Source: Sky

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My name is Joel Bissitt. I have been an entrepreneur for 24 years and have run many small businesses across various sectors. For the last 10 years I have worked mainly within online media, franchising and small business start-ups.

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