Bank Of England Warning About Bad Loans

The Bank Of England has warned about the danger to the economy of too many “bad loans”. They have forced banks to put an additional £11.4 billion into reserves to counter the risks and try to avoid another financial crisis like 2008. This comes as many experts have been warning that there is too much “easy credit” around at the moment, with car loans being one of the major culprits most often mentioned.

The BBC reports

“The Bank’s Financial Policy Committee (FPC) suggested lenders had become complacent about their lending. “Lenders may be placing undue weight on the recent performance of loans in benign conditions,” the FPC said. The committee has also taken action to stop banks getting around key tests which are designed to stop them lending too much to consumers… The FPC highlighted rapidly growing consumer borrowing via credit cards, personal loans and, notably, car finance. Collectively known as consumer credit, these forms of borrowing have grown by more than 10% in the past year, far outstripping the growth of incomes… While the amount of borrowing for consumer credit is just a seventh of the size of mortgage lending, the amount lenders have to write off because it is not likely to be repaid is ten times greater than for defaulting mortgage borrowers”