Published April 04, 2017
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Date: April 04, 2017
Categories: Consumer Credit, Markets Exchanges, riskregulation, Risk and Regulation, Transaction Banking
Keywords: BoE, FPC, FCA, Credit Cards, Loans, Credit Quality
The Bank of England has flagged up new concerns about the rapid growth in consumer borrowing as Britons rack up debt on credit cards, car purchase schemes and personal loans.
Reinforcing recent warnings from the Bank about signs of a borrowing binge, minutes from a policy meeting published on Tuesday suggested it was worried about looser lending conditions such as higher maximum loan limits.
The financial policy committee (FPC) announced last week it was launching a review into the credit quality of new lending – underwriting standards and the risk models used by banks – and said it would scrutinise these findings over the coming months. Tuesday’s record of the FPC meeting revealed policymakers were worried about the risk to banks and other lenders from rising consumer borrowing, although they played down the risks to the wider economy.
“If recent strong growth had been driven by weaker underwriting standards, this could reduce the resilience of lenders to shocks. The FPC judged that underwriting standards should be monitored closely,” said the minutes of the FPC’s 22 March meeting.
“Overall, the committee judged that, relative to mortgage debt, consumer credit was less likely to pose a risk to broader macroeconomic stability through its effect on household spending. Instead, the recent rapid growth in consumer credit could principally represent a risk to lenders if accompanied by weaker underwriting standards.”
The FPC, chaired by the Bank’s governor, Mark Carney, described household indebtedness as “high by historical standards” and noted it had begun to rise relative to incomes.
“Consumer credit had been growing particularly rapidly. It had reached an annual growth rate of 10.9% in November 2016 – the fastest rate of expansion since 2005 – before easing back somewhat in subsequent months,” the meeting minutes noted.
“Growth had been broad-based across different segments of the market. Dealership car finance had seen the fastest expansion in recent years, but credit cards and personal loans had contributed materially to the acceleration in consumer credit in 2016.”
On Monday, the financial watchdog set out proposals to help millions of people languishing under long-term credit card debt. The Financial Conduct Authority (FCA) said charges could be eased or withdrawn if customers could not afford to curb their liabilities through a repayment plan.
The FCA found that 3.3 million people had fallen into a persistent credit card debt spiral, where all their money is spent on repaying interest, while the total debt is never lowered.
Re-disseminated by The Asian Banker from The Guardian