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Mapatasy

UK challenger bank warns of ‘crazy’ loans battle

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"Recent data from the Bank of England has revealed that consumers are borrowing more than ever on UPL. Despite forecasts of slower economic growth, unemployment rising from an 11 year low and higher inflation, some lenders are now offering medium term UPL at record low interest rate margins. STB regards these dynamics as unsustainable and therefore, having reduced UPL lending in the first half of 2016, intends to cease originating new UPL assets at this juncture".

http://www.investegate.co.uk/secure-trust-bankplc--stb-/rns/pre-close-trading-update/201701130700060806U/

 

http://newsonahand.com/uk-challenger-bank-warns-of-crazy-loans-battle/

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V interesting, didn't know what UPL was - unsecured personal loans. Can one of you people deciper this bit - will it not have the effect of discouraging building? Is it an honest attempt by the boe to manage risk?

"In December 2016, all UK banks operating on the Standardised Approach to Capital were advised by the Bank of England that lending for residential development should be risk weighted at 150%. This represents a substantial increase on the 100% previously used by many of the smaller banks and will have an impact on capital requirements in the sector. STB will continue to lend to proven house builders, but believes it is well placed to manage the transition to this new higher capital requirement regime given the short duration of the loan book and STB's existing significant capital surplus.  In addition, new lending is being priced based on the new higher capital requirement levels to achieve the Group's target RoE which should mean that the lower RoE back book is relatively quickly replaced by higher priced new originations. The fact that all of the competitors affected by the change will have to reprice their new lending if they wish to sustain their RoE means that STB is not at a competitive disadvantage albeit it does mean the cost of financing the building of houses will increase and there will be less capacity from small banks to lend to support house building in the UK."

Edited by North London Rent Girl

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There is, in reality, no such thing as an unsecured personal loan. They will still take any asset they can to get their money back - it just takes them a bit more time and paperwork.

If that wasn't the case, the first question they ask would not be 'Are you a home owner?'

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Worth mentioning that many small biz's, not always able to borrow from a bank/ cc,  have used PayPal Working Capital to get a loan on future sales.

They are paid back as they make those sales, by paypal deducting 15-50% (user decides) as the come into the paypal acc.  

PayPal executive claims funding programme a hit with small businesses

ignored by traditional lenders PayPal Working Capital has dispensed £185m worth of funds to 14,000 UK businesses since 2014.  

http://www.ibtimes.co.uk/paypal-claims-funding-programme-hit-small-businesses-ignored-by-traditional-lenders-1574032

Edited by Saving For a Space Ship

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1 hour ago, North London Rent Girl said:

V interesting, didn't know what UPL was - unsecured personal loans. Can one of you people deciper this bit - will it not have the effect of discouraging building? Is it an honest attempt by the boe to manage risk?

"In December 2016, all UK banks operating on the Standardised Approach to Capital were advised by the Bank of England that lending for residential development should be risk weighted at 150%. This represents a substantial increase on the 100% previously used by many of the smaller banks and will have an impact on capital requirements in the sector.

All banks record the industry of their customers and report their loan book split by sector types to the boe on a month by month basis.

Banks hold capital determined by the risk of their counterparties, but im less familiar with this as i think its largely basel 3/4 driven. If you had 10bn of real estate lending you would recently have had to hold 10bn of capital but with the rule change noted you would now need to find another 5bn as the bank considers these to be riskier. 

The categories of business can be seen on the link below.

http://www.bankofengland.co.uk/statistics/Documents/reporters/defs/boxcodes_al2014.pdf

It is blindingly obvious to the boe now which banks are exposed in which areas and which banks are exposed well beyond the 'average' though its not clear what, if anything, they do with this information.

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I don't often post but this an area where I may be able to add something. 

In my day job doing project work, I have worked with a couple of companies lending to Prime customers on an unsecured basis, I never went near sub prime out of principle, ( principles it turns out, does not equal £'s as the true prime market is almost non existent ). 

1 hour ago, CunningPlan said:

There is, in reality, no such thing as an unsecured personal loan. They will still take any asset they can to get their money back - it just takes them a bit more time and paperwork.

If that wasn't the case, the first question they ask would not be 'Are you a home owner?'

All the below should be considered examples and not specific to any one institution.

If something seems to good to be true, it probably is. 

What usually happens is the lender just prices against their expected loss curves, EG, Company knows X amount of people will default and as such will price this in to the loan book, so that as long as losses do not exceed the expected loss, the company is still profitable. For example, we have 100 customers who fit a certain profile, we know 20 of them will go bad, so how much can we charge across this profile to cover the losses in the 20 of them that will go bad and still profit from the 80 good ones.

Then from a collections standpoint, the defaulting loans will be assessed on a cost basis, EG if a customer borrows a low amount, due to the cost of legal action and recoveries process, it is highly unlikely that it won't just be written off, as it is not worth the lenders time to pursue this.

The current bonanza on low pricing will probably be a temporary thing for these companies ( often happens at the beginning of the year ) just so that the various companies can increase market share and get some profit through the door, then the prices will be hiked, then dropped, then hiked. 

Given that a loan is not an emotive or desirable thing most customers will just go for the lowest monthly payments/rate regardless of who offers it ( interestingly enough sometimes ignoring the servicing fee and other associated costs completely ), so the lions share goes to those who can tolerate the biggest hit in loss, your big  lenders will take on these loans knowing that a high proportion will go bad, knowing that they will not make any effort to recover most of the funds that do go bad and factor the losses in knowingly, its really about the large companies booking as many customers as possible in an effort to drive out more effective/diligent smaller companies, the large companies knowing that they can absorb the loss better than the smaller participants so can underwrite riskier loans at lower rates.

Responsible lending, in any traditional sense of the word in my opinion\experience, is just paid lip service in many lenders. The Challenger banks warning here is probably due to them having to compete in a marketplace in which larger competitors seem to act less cautiously due to being able to absorb more defaults. 

Interestingly what this behaviour does is force the more responsible smaller companies to have to make the choice, to either see diminishing market share ( and perhaps bankruptcy ) or to get drawn into higher risk lending and hope that their modelling tools are sophisticated enough to compete with companies that can take a much larger hit.

You can probably imagine from this anecdotal that a sharp uptick in interest rates, or other credit restricting events, would cause the same chaos today as they did in 2008 and that no lessons have been learned. 

 

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16 hours ago, Mapatasy said:

"Recent data from the Bank of England has revealed that consumers are borrowing more than ever on UPL. Despite forecasts of slower economic growth, unemployment rising from an 11 year low and higher inflation, some lenders are now offering medium term UPL at record low interest rate margins. STB regards these dynamics as unsustainable and therefore, having reduced UPL lending in the first half of 2016, intends to cease originating new UPL assets at this juncture".

http://www.investegate.co.uk/secure-trust-bankplc--stb-/rns/pre-close-trading-update/201701130700060806U/

 

http://newsonahand.com/uk-challenger-bank-warns-of-crazy-loans-battle/

Barclays offered me £50k UPL last week and £25k at 3.4% APR,pretty much forcing it down your throat.Insane.

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On 18/01/2017 at 9:52 AM, regprentice said:

All banks record the industry of their customers and report their loan book split by sector types to the boe on a month by month basis.

Banks hold capital determined by the risk of their counterparties, but im less familiar with this as i think its largely basel 3/4 driven. If you had 10bn of real estate lending you would recently have had to hold 10bn of capital but with the rule change noted you would now need to find another 5bn as the bank considers these to be riskier. 

The categories of business can be seen on the link below.

http://www.bankofengland.co.uk/statistics/Documents/reporters/defs/boxcodes_al2014.pdf

It is blindingly obvious to the boe now which banks are exposed in which areas and which banks are exposed well beyond the 'average' though its not clear what, if anything, they do with this information.

Thanks regprentice, so that's a huge hike in perceived risk. I'm wondering whether the government/boe might be trying to put the brakes on the frenzy of inappropriate building - might they be frightened that what looks like a gathering tsunami of unsellable housing stock might have a big impact on sentiment and bring the whole thing crashing down? So there's a genunine risk aspect but the flip side of that is what it might mean for the market more broadly... Or am I on the wrong track?

Edit - this is what I mean: Why is the boe suddenly all :o about housing development risk? It doesn't make sense. If they were honestly trying to address risk, wouldn't the recommended ratios have gone up more gradually? Nothing nothing nothing then they yell +50%? What?

Edited by North London Rent Girl

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On 1/18/2017 at 11:15 AM, Dean said:

Responsible lending, in any traditional sense of the word in my opinion\experience, is just paid lip service in many lenders. The Challenger banks warning here is probably due to them having to compete in a marketplace in which larger competitors seem to act less cautiously due to being able to absorb more defaults. 

I don't know if it's necessarily larger players undercutting the challenger banks. In fact, I would  I feel like it's the challenger banks themselves and P2P lending that is driving an awful lot of the risk on behaviour. It seems a lot of these players are new to the lending market since 2007 and like you said, their managements have completely forgotten the lessons of that period. At least with the likes of a Lloyds or a Barclays, they have a large book of mortgage backed loans that will always be worth something. The challenger banks on the other hand just don't have enough capital to offer mortgages. Anyway, that sort of less risky lending is too borrowing, you can really get some juicy margins by getting involved in credit cards, unsecured lending, car loans. I believe the rates of impairment on this sort of lending is at near generational lows, it's like nothing could go wrong, not ever 

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4 hours ago, Assume The Opposite said:

My car loan is 4.5% while my mortgage is 4%:lol::lol:

Two Nationwide  savings accounts give me 5% for 12 months. Happy days:lol::lol:

Is the Nationwide a 5% regular saver? 5% on the first month down to 1/12th of 5% on the final month?

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Collapsing margins. Hence backs are all shedding costs-automating, and closing branches every week. Challenger banks have to offer a unique proposition 

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11 hours ago, North London Rent Girl said:

Why is the boe suddenly all :o about housing development risk? It doesn't make sense. If they were honestly trying to address risk, wouldn't the recommended ratios have gone up more gradually? Nothing nothing nothing then they yell +50%? What?

Its not the govt or the boe its driven by the basel 3 rules being implemented. These are international standards. Basel3 hasnt been fully implemented yet but basel 4 is already on the way. Ive read that basel 4 will require much stricter capital holdings of as much as 250% in some commercial real estate cases.

Believe it or not this isnt a knee jerk reaction to the current crisis....these rules have been being developed since 2009 and have been phased in over years. Basel 3 wont be fully in force til 2019.

http://www.naiop.org/en/Magazine/2015/Fall-2015/Advocacy/Banking-Regulations-Could-Mean-Trouble-For-Construction-Financing.aspx

https://en.m.wikipedia.org/wiki/Basel_III

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18 hours ago, Democorruptcy said:

Is the Nationwide a 5% regular saver? 5% on the first month down to 1/12th of 5% on the final month?

The flexdirect is 1/12th of £5% per month (about £10) and the other saver I think is once a year. My colleague has had his ISA cancelled with another bank. Looking around I think he said 0.25% is the best he can get!! :lol::lol:

Edited by Assume The Opposite

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