The Bank of England has handed UK lenders a deadline to show they are adequately protected against consumer credit risks as borrowing continues to soar.
While its Prudential Regulation Authority – which has powers to force credit curbs on banks – did not outline any new rules, it said lenders would have until September to demonstrate they had not overstretched themselves.
Its review of the market was released just a week after the Bank reintroduced so-called countercyclical capital buffers to ensure the nation’s banks have reserves to cope with problems.
The Bank reduced the buffers to zero last July after the Brexit vote in a bid to maintain lending to households and businesses.
The findings of the PRA’s review were released amid growing concern that consumers – and banks alike – have taken on too much at a time when the economy is stuttering.
The review found: “In an environment of rapid growth in consumer credit, interest margins have fallen and there was evidence of weakness in some aspects of underwriting, so lenders are more vulnerable to losses in stress.”
Consumer borrowing has been growing at an annual rate of 10% while household savings rates are near rock bottom lows.
There are fears the problem will only get worse, given household budgets are being squeezed by rising inflation and weaker wage growth. There is also growing evidence businesses are putting off investment amid the economic uncertainty.
This is not the first time banks’ lending practices have come into sharp focus since the financial crisis.
The Bank of England has already tightened mortgage lending criteria while it said in March that its latest stress tests would include a drop-off in foreign investment scenario to gauge the potential for further Brexit-related trouble.