(Bloomberg) -- The Bank of England is seen announcing its first interest-rate increase in a decade this week. Based on their comments this earnings season, U.K. bank bosses aren't worried that such a move would be premature.
For Antonio Horta-Osorio, chief executive officer at Lloyds Banking Group Plc, Britain's largest mortgage lender, “a slow rise in interest rates is beneficial in general for retail and commercial banks." Barclays Plc's Jes Staley expects tightening “will be done in a way that preserves economic growth." Royal Bank of Scotland Group Plc's Ross McEwan said in September that any rate rises will likely be “small and measured."
Their optimism will be justified if gradual tightening boosts banks' interest margins on loans while not being severe enough to trigger mortgage defaults. RBS would benefit the most, analysts at UBS Group AG and Deutsche Bank AG said.
“RBS is best-placed of the domestic banks, given its excess deposit holdings and low cost funding," Jason Napier, a London based analyst at UBS, said in a note to clients. “Higher U.K. policy rates are clearly supportive of interest margins.”
For each 25 basis-point increase, RBS estimates an additional 175 million pounds in income, McEwan said on Oct. 27.
Policy makers have voiced concerns over consumers using debt to maintain their standard of living in the U.K., and some economists fear that tightening now would be a mistake amid Brexit uncertainty, but only a few are predicting the BOE will keep rates on hold Thursday.
According to UBS, a rate increase of 50 basis points on a 100,000-pound ($133,000) mortgage would cost a borrower only 26 pounds more per month, meaning tightening is unlikely to trigger defaults.
To contact the reporter on this story: Stefania Spezzati in London at sspezzati@bloomberg.net.
To contact the editors responsible for this story: Ambereen Choudhury at achoudhury@bloomberg.net, Keith Campbell, Jon Menon
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