Bank of England Flags Risks Around Consumer Borrowing
March 27 2017 - 05:05AM
Dow Jones News
By Jason Douglas and Wiktor Szary
LONDON--The Bank of England said Monday that it plans to review
banks' lending standards following a surge in consumer borrowing, a
sign that officials are increasingly wary that rising household
debt could pose a risk to financial stability.
In a quarterly assessment, the BOE's Financial Policy Committee
said that rapid growth in consumer credit could hurt the financial
system if lax underwriting standards led to heavy losses for banks
from souring loans.
The central bank said that lending standards "should be
monitored closely" and that the BOE's bank-supervisory arm has
launched a review to examine lenders' practices.
The move comes after data show British consumers appear to be
increasingly turning to debt to finance spending amid feeble wage
growth and quickening inflation. Unsecured borrowing rose at an
annual rate of more than 10% in the final months of 2016, according
to BOE figures.
A sharp fall in the pound since the U.K. chose to leave the
European Union in June has fueled a pickup in inflation, which
accelerated in February to an annual rate of 2.3%, the fastest
growth in prices in more than three years. Prime Minister Theresa
May has said she plans to formally notify Brussels of Britain's
intention to withdraw from the bloc on Wednesday, kicking off two
years of exit talks.
The BOE's Financial Policy Committee, which monitors risks to
the stability of the U.K. financial system, said Monday that
Britain's EU exit carries potential risks and that it is working
with banks to mitigate them. It said lenders should have plans in
place to cope with a variety of possible outcomes from the coming
talks.
The BOE also Monday published details of its annual health-check
for Britain's banks. Results are due in the fourth quarter.
This year's exam is in two parts: A short-term stress test to
probe lenders' resilience to a sharp fall in sterling and house
prices alongside a rise in interest rates, and a long-term scenario
that will examine how banks would cope with a lengthy squeeze on
profits from weak growth and mounting competition.
The FPC added that it will look at nudging up bank capital
requirements later this year, after it moved in the summer to cut
the so-called countercyclical capital buffer to zero following the
referendum result.
Write to Jason Douglas at jason.douglas@wsj.com and Wiktor Szary
at wiktor.szary@wsj.com
(END) Dow Jones Newswires
March 27, 2017 04:50 ET (08:50 GMT)
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