- Standard and Poor’s says double-digit growth in UK consumer debt this year should alarm British lenders.
- UK consumer credit has passed £200 billion this year.
- “The recent double-digit annual growth rate in U.K. consumer credit would be unsustainable if it continued at the same pace,” S&P said.
LONDON — Double-digit growth in UK consumer debt this year should alarm British lenders, according to credit rating agency Standard and Poor’s.
S&P said in a report on Tuesday that consumer credit — which constitutes borrowing like car finance and credit cards — has climbed over £200 billion this year in a low-interest rate market, and warned that losses from lenders could lead to ratings agencies downgrading UK lenders.
The agency added that while near-term credit risk remains low, “the recent double-digit annual growth rate in U.K. consumer credit would be unsustainable if it continued at the same pace.”
The report also highlighted the Bank of England’s concern over consumer credit levels, which have grown by 10% this year while household income growth has grown by only 2%.
“The Bank of England’s recent assessment of stressed losses on consumer credit lending, brought forward as part of its annual stress test results, also indicates that the regulator is concerned that the resilience of these portfolios may be reducing,” it said.
S&P Global Ratings credit analyst Joseph Godsmark said lenders had not been seriously tested on their ability to pull back lending since the 2008 financial crisis.
“Although we consider that near-term credit risk remains low, past experience shows that lenders find it hard to avoid inherent cyclicality in consumer credit, and the impact can be severe,” he said.
“Furthermore, banks’ discipline in constraining risk appetite for new underwriting and risk-based pricing in a hot market has not been seriously tested since the financial crisis.”
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