Impairment threat puts banks on alert as interest rates rise further

Karim Haji, EMA and UK Head of Financial Services at KPMG, said:

“Banks may be continuing to benefit from a high interest rate environment as margins normalise after a long period of ‘low and slow’ conditions, but they recognise this is temporary and are looking to increase fee-based earnings to reduce sensitivity to interest rates.

“To date there hasn’t been a significant increase in credit losses through impairments, and with defaults on the up, pressures on banks will only intensify if the base rate continues to rise. It remains to be seen if margins are sustainable at these high levels after credit cost, especially given the reasonable increasing political and regulatory focus on higher rates being passed through to savers.

“Banks are considering how best to respond given their ethical and moral responsibility to customers struggling financially and they will be thinking about sustainable solutions, not just short-term relief. Rate rises are a complex issue and mortgage lenders need to more focus on affordability when extending products, and will want to ensure that customers fully understand what could happen in various interest rate scenarios.”

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For further information please contact:

Alastair Henry, Citypress

M: +44 (0) 7901115649

E: KPMGfs@citypress.co.uk

Helen Jackson, KPMG Corporate Communications

M: +44 (0) 7901115649

E: helen.jackson@kpmg.co.uk

About KPMG UK

KPMG LLP, a UK limited liability partnership, operates from 20 offices across the UK with approximately 17,000 partners and staff. The UK firm recorded a revenue of £2.72 billion in the year ended 30 September 2022.  

KPMG is a global organization of independent professional services firms providing Audit, Legal, Tax and Advisory services. It operates in 143 countries and territories with more than 265,000 partners and employees working in member firms around the world. Each KPMG firm is a legally distinct and separate entity and describes itself as such. KPMG International Limited is a private English company limited by guarantee. KPMG International Limited and its related entities do not provide services to clients.