BOE Tells Banks to Get a Better Grasp of Consumer-Credit RisksBy
Prudential Regulation Authority writes letter to bank boards
U.K. may conduct review of board oversight by risk committees
The Bank of England told U.K. bank boards to improve their oversight of credit cards, personal loans and car finance, as the central bank presses the industry to get a better handle on the recent rapid growth in consumer credit.
The BOE’s Prudential Regulation Authority said in a letter to banks on Wednesday that there are “weaknesses” in how boards assess risks from consumer credit, and that it found that certain lenders do not give their boards good enough data to properly oversee potential threats. The PRA said it may start a review this year into boards’ ability to monitor risks.
“We are a bit concerned that the information coming up to the boards of the relevant institutions isn’t sufficiently granular or clear to allow the boards to have a really good sight of what’s going on and changes in risk appetite,” Sam Woods, head of the PRA, told U.K. lawmakers on Jan. 16. “We’ve been working to make them appreciate those risks more fully.”
The letter is the latest step by the BOE to tackle risks to the U.K. banking system after telling lenders last year not to underestimate the potential for problems to lurk on balance sheets. BOE Governor Mark Carney has warned that U.K. banks may be forgetting “the lessons of the past” by relying too heavily on their own estimates of the risks on their books, understating threats and leaving them more vulnerable to stress.
Consumer credit increased by about 10 percent in the year to September 2017, according to a BOE report in November that found “a pocket of risk” stemming from the “rapid growth” in the sector.
The PRA said on Wednesday that firms acknowledged concerns that models may not adequately capture medium-term risks and that the regulator has seen recent signs of a “slight tightening” in underwriting standards. The PRA will assess the resilience of consumer credit books in future stress tests.