2017.09.2506:33:00UTC+00BoE Warns On Consumer Credit Growth

There is a pocket of risk in the rapid growth of UK consumer credit, the Financial Policy Committee of the Bank of England said Monday.

Lenders overall are placing too much weight on the recent performance of consumer lending in benign conditions as an indicator of underlying credit quality.

Banks are underestimating the losses they could incur in a downturn, the FPC noted.

The FPC estimated that the banking system would incur around GBP 30 billion losses in three years in the event of a recession.

Capital buffers for individual banks would be set following the stress test results so that each one of them can absorb its losses on consumer lending.

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

The FPC observed that defaults on consumer debt have fallen in recent years, with write-off rates falling from 5 percent to 2 percent between 2011 and 2016.

The bank maintained the UK countercyclical capital buffer rate at 0.50 percent. The FPC expects to lift it to 1 percent at its November meeting.