Bank of England Focuses on Consumer-Credit Risk to Stability

(Bloomberg) -- The Bank of England identified consumer credit growth as a financial-stability risk, with an annual expansion rate of 10.9 percent in November, the fastest since 2005.

While consumer-credit growth eased in subsequent months, the BOE's Financial Policy Committee said at its March 22 meeting that household indebtedness remains “high by historical standards” and is rising relative to incomes.

An easing of credit-supply conditions has contributed to the expansion, the FPC said, including the “gradual extension of interest-free periods on credit-card balance transfer offers, an increase in maximum loan limits in some parts of the unsecured personal loan market, and a compression in the cost of borrowing through unsecured personal loans compared to the cost of borrowing on a secured basis through mortgages in recent years,” the FPC said in a record of the meeting published on Tuesday.

Assessing the resilience of the financial system, the FPC said aggregate Tier 1 capital of major U.K. banks stood at 15.1 percent of risk-weighted assets in December, compared with an “appropriate” level of 13.5 percent as currently measured.

The FPC plans to review that benchmark in light of ongoing talks in the Basel Committee on Banking Supervision and the implementation of new IFRS 9 accounting rules.

The leverage ratio of major U.K. banks in aggregate was 5.3 percent of total exposures in December, compared with an aggregate requirement including buffers of 3.3 percent, the FPC said. It plans to review this benchmark at its next meeting to take account of its decision to exclude central bank reserves from the exposure measure.

To contact the reporter on this story: John Glover in London at johnglover@bloomberg.net.

To contact the editor responsible for this story: Patrick Henry at phenry8@bloomberg.net.