London (AFP) – Britain’s banks need to set aside another £10 billion ($13.5 billion, 11.3 billion euros) to cushion against potential consumer credit losses, the Bank of England warned Monday.
The central bank’s Financial Policy Committee watchdog said the sector was “underestimating” the risks of mounting household debt, but added that climbing debt levels did not pose an immediate risk to the economy.
“Within a benign overall domestic credit environment, there is a pocket of risk in the rapid growth of consumer credit,” the FPC said in statement after meeting on September 20.
“This is not a material risk to economic growth, as consumer credit represents only 11 percent of overall household debt.
“It is a risk to banks’ ability to withstand severe economic downturns.”
In a severe stress test scenario, the FPC estimated that banks would incur consumer credit losses or about £30 billion, or 20 percent of UK consumer credit loans, during the first three years of a very deep recession.
That is £10 billion more than the watchdog had previously outlined.