Bank debt could hurt UK

THE largest UK banks will need to refinance or replace around £750bn worth of term loans and liquid assets by the end of 2012, warned the Bank of England yesterday.

The scale of the required refinancing is greater than that of banks based in the US, Germany, France or Italy and could hurt the UK’s economic recovery if not achieved in time, the Bank of England said today in its biannual Financial Stability Report.

It cautioned that banks should not be too optimistic about their abilities to attract retail deposits at a time when they are competing for inflows and that they should start work now.

The Bank, led by governor Mervyn King, warned UK financial institutions faced tough challenges in the years ahead and would need to maintain their resilience in what will continue to be a difficult environment. Consequently, the transition to the new Basel accord, which will be agreed in the autumn, should be extended to help banks build greater resilience, he said.

The central bank also highlighted the increase in risks to financial stability from the sovereign debt crisis in the Eurozone. “Although UK banks have limited holdings of sovereign debt in economies where fiscal concerns have been most acute, they have counterparty relationships with European banking systems that have larger exposures,” the report said. “If undiminished, sovereign concerns could also affect UK banks through their impact on global financial markets.”

The report also showed that people are banking more money than they are borrowing for the first time since records began in 1988. Households last year put £24bn into deposit accounts and took out £20bn in new loans.