Shaken by the endless saga around Brexit and the global slowdown, the British economy is now showing signs of an impending crisis. The largest banks in the UK are facing a growing number of lending companies that are struggling to pay. At the same time, low interest rates on mortgages limit opportunities for revenue growth.
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Larger lenders amortize more debt than a year ago
The largest lenders in the United Kingdom canceled more loans than last year, which is another indication that many businesses are suffering in a deteriorating economic environment. In the third quarter of 2019, bad debt write-downs in four major UK banks increased 51 percent from the same quarter of 2018, the Daily Mail reported, citing company figures.
The amount of unproductive loans written off by RBS, Lloyds, HSBC and Barclays between July and September reached £ 1.76 billion (approximately $ 2.27 billion). In the same period last year, this figure was about 1.17 billion pounds ($ 1.51 billion), according to an analysis by the UK-based financial services company, AJ Bell.
The difference of nearly £ 600 billion has been attributed to the deteriorating economic situation affecting more and more companies operating in the country. The British group Thomas Cook, which collapsed in September, is an example.
A total of 4,355 companies were unable to pay their debts in the third quarter, according to official data from the UK government's insolvency service. This is the highest figure in five years recorded by the executive agency of the department of business, energy and industrial strategy, headquartered in London.
Low interest rates to increase bank revenues
Doubtful loans are not the only challenge currently facing the major lenders in the UK. According to the publication, banks have also warned that they expect their earnings to be affected by low mortgage rates that are approaching their record lows for now.
According to a study published by market data provider Statista, interest rates on mortgage loans in the UK have been steadily declining for the last five years. In June 2019, two-year fixed rate mortgages were 1.65%, down from 2.60% in the summer of 2014. The two-year variable interest rate is over from 2.71% to 1.99. The 10-year fixed rate rose from 4.06% in September 2014 to 2.63% last June.
Credit institutions can hardly raise mortgage rates at this time because the basic interest rate set by the Bank of England is only 0.75%. It has remained below 1% since the Central Bank's Monetary Policy Committee reduced it to 0.5% in 2009, or about seven years. The average variable mortgage rate at the time was 2.5%. The rate was lowered to a record low of 0.25% in August 2016.
Although the cost of borrowing was raised to 0.75% in August 2018, its highest level since the beginning of 2009, serious concerns remain as to the state of the UK economy. and its prospects. After another unsuccessful attempt to exit the European Union, the United Kingdom is now heading towards its third general election in five years, which creates increased uncertainty for its economy already weakened by the global economic slowdown.
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Do you think that the growing number of bad debts in Britain is a sign of an impending economic crisis? Share your thoughts on the subject in the comments section below.
Images courtesy of Shutterstock, Statista.
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