Friday, the Bank of England said many banks in the UK and internationally need to strengthen their balance sheets further by reducing leverage and planning to extend the maturity of their funding.
In its twice-yearly Financial Stability Report, the central bank said, "While their profitability is relatively buoyant and market conditions broadly favorable, banks should take opportunities to strengthen their balance sheets." Further, banks should insure against future adverse developments, said BoE.
Given their balance sheet vulnerabilities, banks remain exposed to any future deterioration in macroeconomic and market conditions, which could substantially raise the cost of funding and capital raising in the future, the BoE added.
Further, the central bank noted that probability of default by UK real estate companies has increased significantly. As annual gross income growth fell sharply, rental values are expected to decline further in the next year.
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