UK banks heed BoE’s warning on credit card lending


12 Oct, 2017

UK banks heed BoE’s warning on credit card lending

The Bank of England’s warning to UK lenders on ballooning consumer credit and “reckless lending” seems to be working after a recent report showed that the availability of unsecured credit to households is expected to decrease significantly in Q4.

In recent weeks, the BoE have warned of the dangers of reckless lending and have told UK banks to reign in on unsecured credit lending. The BoE recently announced that lenders must raise £116bn to avoid bailouts from taxpayers’ money in the future.

The BoE said that British high street banks could lose as much as £30bn from defaults on credit cards and personal loans credit as the £200bn consumer debt pile grows at an alarming pace.

However, the BoE’s latest Credit Conditions Survey showed that UK banks are taking heed of this warning after they tightened the credit scoring criteria needed for granting both credit cards and other forms of unsecured lending.

Q3 has already shown a significant drop in unsecured credit lending to households whilst this trend is expected to accelerate further in Q4. In fact, as a result of this tightening, unsecured lending availability has fallen as its fastest pace since 2009.

Although, despite this, default rates on credit cards increased slightly and rose significantly on other unsecured lending, indicating that a lot of work still needs to be done in this area.

Whilst booming consumer credit remains a “pocket of risk” to economic stability, for now at least, the central bank's Financial Policy Committee acknowledged that the overall quality of consumer credit has improved.

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