Bank of England stress tests find UK lenders would be ‘resilient’ in an economic crisis

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The UK’s top eight banks “would continue to be resilient” in an economic environment “much worse” than the one they face, and are well positioned to support households and businesses through a period of rising interest rates, the Bank of England said on Wednesday.

The verdict of the BoE’s latest stress tests on banks’ capacity to weather imagined catastrophes came as bank officials warned that the wider financial sector faced risks from a “highly uncertain” economic outlook and a “challenging” environment for risk.

The UK has been regularly stress testing banks since 2014 but has not failed a lender since 2016, when nationalised Royal Bank of Scotland was ordered to raise £2bn, while Barclays and Standard Chartered were called out for shortcomings.

The latest tests, which cover NatWest, HSBC, Barclays, StanChart, Lloyds, Santander, Nationwide and Virgin Money, were based on a doomsday scenario imagined in September 2022, before a spate of US bank collapses and the demise of Credit Suisse.

“UK banks are in a strong position to support customers who are facing payment difficulties,” the BoE said. “This should mean lower defaults than in previous periods in which borrowers have been under pressure.”

UK banks say they have so far seen little evidence of rising arrears in loan books even as mortgage rates climb. Rising interest rates have pushed up core profitability by boosting net interest margins — the difference between the interest banks charge on their loans and the rate they pay on deposits — but this could come under pressure as regulators press lenders to pay more interest on savings.

Additional reporting by Jane Croft