Lenders told by Bank of England to justify consumer credit surge

04 Juillet, 2017, 16:40 | Author: Marc Bacque
  • The Mark Carney headed Bank of England has started to put banks under pressure over their consumer lending

Consumer borrowing has been growing at an annual rate of 10% while household savings rates are near rock bottom lows.

The Bank of England has handed United Kingdom lenders a deadline to show they are adequately protected against consumer credit risks as borrowing continues to soar.

The Prudential Regulation Authority (PRA) has found that, although there has not been a huge drop in lending standards, the resilience of consumer credit portfolios is reducing as consumer lending is booming.

In a review of 20 large firms, the PRA was troubled that they were overly reliant on the current benign macroeconomic environment in their risk assessments and were not factoring in what might happen to consumer loans in times of stress.

No new rules are being outlined, but company boards are being made directly responsible for the response to the PRA.

The PRA said United Kingdom lenders appeared to be relying too heavily on the assumption that the economy would remain healthy with low levels of arrears.

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The BoE has previously announced measures to tighten standards in mortgage lending.

Last week, Britain's Financial Conduct Authority said it was taking a close look at lending practices in the fast growing vehicle financing sector.

"We expect firms to understand the effects their staff incentives might be having", said Jonathan Davidson, executive director of supervision at the FCA.

Lenders seemed to be assuming Britain's economy will remain healthy and low arrears rates will continue, it said.

Lenders will have to show how they are protecting themselves against risk, including in their credit-scoring, at a time when many borrowers have not been put to the test of higher rates.

On Tuesday, the PRA will make a statement on its first set of specific actions or "expectations" from the banks it regulates regarding credit to consumers. Last week, the BoE said banks would have to start building a supplementary buffer of capital to ensure they can absorb any losses from defaults in credit.

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