Banks should brace for more regulatory scrutiny of their credit card and buy-to-let portfolios ahead of an extended period of credit stress, the Bank of England warned.
(Bloomberg) — Banks should brace for more regulatory scrutiny of their credit card and buy-to-let portfolios ahead of an extended period of credit stress, the Bank of England warned.
Rising interest rates, inflation and geopolitical uncertainty will challenge firms’ credit portfolios, the Prudential Regulation Authority, part of the BOE, said in a letter to bank bosses on Tuesday. The PRA will focus on how firms manage risk around unsecured personal loans, buy-to-let mortgages, leveraged lending and commercial real estate.
“Firms need to be ready for a prolonged period of credit stress,” wrote David Bailey, an executive director at the PRA, and Charles Wood, a director. “Firms should expect increased engagement with us, including targeted requests for enhanced data and analysis.”
The regulators also said firms still needed to improve their governance after the collapse of Archegos Capital Management in 2021. The unraveling of Bill Hwang’s family office triggered losses of more than $10 billion across firms including Credit Suisse Group AG, Nomura Holdings Inc. and Morgan Stanley.
Despite regular messaging from the PRA, “firms continue to unintentionally accrue large and concentrated exposures to single counterparties, without fully understanding the risks,” according to the letter.
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