REPEAT: MNI: BOE FPC Highlights Leveraged Lending Growth

Repeats Story Initially Transmitted at 09:07 GMT Oct 17/05:07 EST Oct 17

--BOE FPC: Mortgage Growth Weak Despite Lenders' Margin Compression

By David Robinson

     LONDON (MNI) - LONDON (MNI) - The minutes of the Bank of England Financial

Policy Committee's October 3 meeting fleshed out concerns over rapid growth in

leveraged lending, and over the challenges of ensuring continuity of financial

service provision in the event of a no deal Brexit.

     The FPC's October meeting was a stop-gap. Its next meeting on November 28

will come after the planned Nov 17-18 EU summit on the UK's withdrawal agreement

and the FPC will unveil a new set of UK bank stress tests on December 5.

     The following are key points from the October minutes:

     --UK household and corporate borrowing demand is soft. Lenders have raised

their risk profile by squeezing margins and leveraging loans, with the upshot

that financial stability risks have picked up without the real economy

accelerating.

     --Investors' search for yield has driven strong growth in leveraged

lending. Gross issuance of non-financial firms' leveraged loans stood at Stg30

billion in the year-to-date, putting it on track to exceed the record high of

Stg38 billion hit in 2017.

     These leveraged loans are typically being sold to non-bank investors "whose

ability to sustain losses without materially impacting financial conditions was

uncertain," the FPC minutes said.

     The FPC said that it would look into the increasing role of non-bank

lenders and the threat to financial stability.

     --Overall UK corporate lending growth has been modest, at 5.2% in the year

to Q2 2018. The FPC cited weak demand and Brexit-related uncertainty.

     --In the UK mortgage market lenders have squeezed their margins for high

end loan-to-income (LTI) and loan-to-value (LTV) lending, with the proportion of

new mortgages with an LTI ratio above four at a record high of around 28%.

     Again, despite this growth in mortgage borrowing has been subdued, rising

just 3.1% in the year to August.

     --Much of the March FPC meeting was taken up by consideration of the threat

of a disorderly Brexit to continued servicing of insurance and derivatives

contracts.

     The FPC was keen to get a message across to the European Central Bank and

European Banking Association that action was required, but much of the work on

this is going on off stage and the picture will become clearer in coming months.

--MNI London Bureau; +44208-865-3829; email: Jason.Webb@marketnews.com