Posted by AdviserDirect on 06/26/2019

UK challenger banks vulnerable to no-deal Brexit

UK challenger banks vulnerable to no-deal Brexit

UK challenger banks may be more vulnerable than established banks to an economic downturn and Brexit-related risks, Fitch Ratings says.

Several challenger banks have grown fast in retail mortgage lending, often to niche borrowers, or in asset classes that perform less well in a stress, to gain a foothold in the market. 

Fitch views sustained above-market-average growth as a potential risk to a bank's credit profile because it may indicate under-pricing of risk or a loosening of underwriting standards to generate volume. Rising interest rates and unemployment could also trigger significantly greater losses on banks' mortgage portfolios, with falling house prices exacerbating the impact.

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