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Impairments on rise among U.K. lenders, says BOE Deputy Governor
Editor
Published Sep 19, 2023 06:51AM ET
© Reuters
In an effort to curb soaring inflation, the central bank has escalated its primary interest rate from 0.1% in December 2021 to a 15-year peak of 5.25%. Further, the market anticipates another increase later this week to 5.5%. This series of hikes is causing an uptick in impairments within the British banking sector, as noted by Sam Woods, Deputy Governor of the Bank of England on Tuesday.
Despite these challenges, the economy has shown notable resilience. Woods, who also serves as CEO of the Prudential Regulation Authority (PRA), stated that regulators are vigilantly observing potential strains in the banking sector. He expressed optimism regarding the sector's performance during the COVID-19 pandemic, crediting substantial fiscal and monetary support for safeguarding the banking system from significant credit losses.
However, he acknowledged that impairments across the banking sector are increasing, although he stressed that there is no cause for alarm. The PRA estimates that just over 1% of mortgages are currently in arrears. This figure matches levels seen as recently as 2018 and is significantly lower than during the financial crisis when it peaked at 3.6%.
Woods highlighted that while this figure is rising, it is from a very low base, and regulators are closely monitoring it. He also noted that Britain's smaller banks are over three times better capitalized now than during the financial crisis.
The non-bank financial sector came under scrutiny in September 2022 when the Bank of England intervened to prevent several UK pension funds from collapsing following a plunge in government bond prices and substantial shifts in interest rates. Woods confirmed that the PRA continues to monitor these institutions closely, particularly those with significant exposure to China's property market, which is currently experiencing a slowdown.
This comes in the wake of several small U.S. lenders collapsing earlier this year, which sent shockwaves through the global banking system. Despite these international challenges, Woods emphasized that the British banking sector remains robust and well-capitalized.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
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