UK banks 'could withstand a worst case no-deal Brexit', says Bank of England
UK banks are prepared for a financial crisis even in the case of a no-deal Brexit, the Bank of England said.
The banks could keep lending even if UK GDP dropped by 4.7% and unemployment jumped to 9.2%.
New figures come from an annual stress test designed to see what our banks could deal with.
The banking sector is ‘resilient to and prepared for the wide range of UK economic and financial shocks that could be associated with a worst-case disorderly Brexit,’ the Bank of England concluded today.
However, some banks might have to cut spending to stay afloat, they said.
All the UK’s main lenders could withstand a perfect storm where world gross domestic product (GDP) fell by 2.6%, UK GDP dropped by 4.7%, Bank rates rose to 4%, and unemployment jumped to 9.2%. The scenario also includes costs for bank misconduct.
The banks would also withstand financial problems caused by Brexit, the trade war between the US and China, and unrest in Hong Kong, the Bank said, as none will create a situation worse than the scenario that the Bank of England simulated.
However, UK banks would take a bigger hit from their corporate lending than in the last test, as they are giving out riskier loans to companies.
Banks have granted around 8% of their business loans, or £67 billion, to companies with a high debt-to-cash ratio. This means they owe more for each pound they hold in cash than other firms. These riskier loans would account for 15% of banks’ losses in the scenario.
The Bank said: ‘Losses on corporate exposures are higher than in previous tests, reflecting some deterioration in asset quality and a more severe global scenario.
‘Despite this, and weakness in banks’ underlying profitability … all seven participating banks and building societies remain above their hurdle rates.’
Some banks relied on cutting staff bonuses, dividends and other distributed earnings to pass the stress test.
New figures come from an annual stress test designed to see what our banks could deal with.
The banking sector is ‘resilient to and prepared for the wide range of UK economic and financial shocks that could be associated with a worst-case disorderly Brexit,’ the Bank of England concluded today.
However, some banks might have to cut spending to stay afloat, they said.
All the UK’s main lenders could withstand a perfect storm where world gross domestic product (GDP) fell by 2.6%, UK GDP dropped by 4.7%, Bank rates rose to 4%, and unemployment jumped to 9.2%. The scenario also includes costs for bank misconduct.
The banks would also withstand financial problems caused by Brexit, the trade war between the US and China, and unrest in Hong Kong, the Bank said, as none will create a situation worse than the scenario that the Bank of England simulated.
However, UK banks would take a bigger hit from their corporate lending than in the last test, as they are giving out riskier loans to companies.
Banks have granted around 8% of their business loans, or £67 billion, to companies with a high debt-to-cash ratio. This means they owe more for each pound they hold in cash than other firms. These riskier loans would account for 15% of banks’ losses in the scenario.
The Bank said: ‘Losses on corporate exposures are higher than in previous tests, reflecting some deterioration in asset quality and a more severe global scenario.
‘Despite this, and weakness in banks’ underlying profitability … all seven participating banks and building societies remain above their hurdle rates.’
Some banks relied on cutting staff bonuses, dividends and other distributed earnings to pass the stress test.