The British banking sector is seeing a rise in impairments amid rising inflation and ensuing interest rate hikes, according to Bank of England Deputy Governor Sam Woods.
In a bid to tame runaway inflation, the central bank has hiked its main interest rate from 0.1% in December 2021 to a 15-year high of 5.25% presently, and the market expects another hike later this week to 5.5%.
The economy has proven surprisingly resilient, but Woods, also CEO of the Prudential Regulation Authority, said regulators are closely monitoring potential stresses in the banking sector.
“So far things have worked out a bit better than many people expected and particularly through Covid of course, the huge fiscal and monetary support did actually shield the banking system from credit losses,” Woods told CNBC on Tuesday.
“But as we’re looking at it now, we are actually seeing a pickup in impairments across the banking sector. It’s not one that people should be alarmed about.”
The PRA estimates that just over 1% of mortgages are in arrears. Woods noted that number was equally high as recently as 2018, and during the financial crisis it was 3.6%.
“So it’s going up but from a very low base, and we’ve got a close eye on it,” he added.
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