MNI POLICY: UK Credit Growth Not Troubling: BOE Cunliffe

--Cunliffe: Brexit Aside Risks To Financial Cycle Not Obvious

By David Robinson

     LONDON (MNI) - Setting aside the obvious dangers from a disorderly Brexit,

it is not clear where the key risks to UK financial stability lie at present,

Bank of England Deputy Governor Jon Cunliffe said Wednesday.

     Cunliffe warned the key issues may lie outside the core banking system, and

arise from the rapid evolution of the financial system in recent years.

     The following are key points from the speech at the London School of

Economics: 

     --BOE research has found that a rapid build up in credit is a fairly

reliable indicator of a subsequent downturn but Cunliffe said that the pace of

recent credit growth appears sustainable. "Aggregate credit to the household

sector is growing broadly in line with nominal GDP, whereas before the crisis it

grew for a number of years at the rate of GDP," he said.

     -Cunliffe said that he expected the next crisis to include over extension

of credit and losses, but neither mortgage lending in the UK nor unsecured

lending are sending clear warning signals yet. The mortgage market has been

idiosyncratic, with increased risk appetite from mortgage lenders meeting

subdued demand from home buyers. "The number of mortgage transactions has

remained pretty static over the past few years," despite lenders attaching

historically low interest rates to tranches of high loan-to-value mortgages.

     Fierce competition in the mortgage market, with new entrants, can explain

the improvements on the mortgage supply side while Brexit uncertainty could

partly explain subdued demand, in Cunliffe's view.

     --He cited the possible risk posed by the rapid growth of UK leveraged

lending, with loans up around a third in 2018 in sharp contrast to slow growth

in overall corporate lending. Cunliffe warned that underwriting standards for

leveraged loans had declined markedly but he added that such loans only made a

small fraction of corporate lending.

     --The Deputy Governor noted that the Financial Policy Committee had deemed

overall financial stability risks as standard and he repeated the BOE's line

that its stress tests showed the banking system well placed to withstand even

the most disorderly Brexit.

--MNI London Bureau; tel: +44 203-586-2223; email: david.robinson@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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