EU banks face new debt woe
EUROPE’S banks are set for renewed pain due to rising levels of consumer debt defaults linked to credit card loans, the International Monetary Fund (IMF) warned yesterday.
The IMF estimates that seven per cent of Europe’s £1.5bn in consumer debt will turn sour, with the UK set to be particularly badly affected by its reliance on credit card debt.
US lenders reporting half-year results this month have taken billions of dollars in charges relating to their credit card portfolios and the UK also looks likely to follow a similar trend.
Charge-off rates – the percentage of loans firms give up on as unrecoverable – on credit cards in the UK reached 9.37 per cent in May, compared to 6.4 per cent last year, ratings agency Moody’s said, putting Britain just below the US rate of more than 10 per cent.
Peter Sergeant, partner at corporate rescue firm Begbies Traynor, said the government’s decision to rewrite the Enterprise Act to speed up bankruptcies was partly to blame for Britain’s credit crisis.
“What was perceived as a business insolvency procedure became the insolvency route of choice for the domestic economy,” he said.
Banks are also preparing for further losses relating to commercial property loans, with Lloyds, burdened by its HBOS legacy assets, set to be among the worst affected.
UBS analysts have predicted that charges against its loan book will drag the Swiss bank to a £6bn half-year loss
Property firm Savills said earlier this year that around half of the UK’s £300bn in commercial property loans need to be refinanced over the next two to three years.