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BoE financial stability report statement

A response to the Bank of England’s decision to relax the capital control rules on UK banks.

07-07-2016 | Bank lending in decline

Following the recent EU referendum vote and the risks presented by the Brexit vote to the UK economy, the Bank of England recently announced that to fight the threat of recession it will be relaxing capital control rules on UK banks.

Mark Carney, governor of the Bank of England decided to cut the ‘counter-cyclical capital buffer’ on UK banks. This means banks need to keep less capital on their books which it is suggested could give them the flexibility to inject up to £150bn more into the economy by lending to businesses and households. The steps to boost lending in the economy are a result of a downward trend in lending in the first part of 2016.

A resilient financial institution

Triodos Bank has plenty of funds available to lend. In 2015 our lending increased by 11%, taking our loan portfolio to £625m. Our ambition is to increase this pace of lending growth to 15-20% annually.

We believe that the growing appetite for sustainable banking from individuals and organisations alike offers Triodos Bank huge potential to grow both in scale and in terms of the impact it delivers. (Read more about who we lend to and our ambitions for growth here )

Additionally equity in Triodos Bank increased in 2015 by 11% to EUR 781 million. This additional capital has helped us maintain a position as a resilient financial institution. The Core Tier 1 ratio (the core measure of a bank's financial strength from a regulator's point of view) remained at the level of 19.0%, well above Triodos Bank’s target of minimum 16%.

Not only do we have strong capital ratios, but we also have a very strong liquidity position, with liquidity ratios well in excess of the regulatory minimum, so we have both the capital and the cash to support lending growth without the need for any relaxation of regulatory requirements.

Support from the financial sector

When announcing the BoE decision Mark Carney, the governor, commented that businesses and households can seize opportunities in the post-Brexit world - being confident they will be supported by the financial sector.

In response to this Triodos Bank UK’s Managing Director, Dr Bevis Watts said:

"We appreciate there will be short-term disruptions and challenges in the economy as a result of the referendum vote. The counter-cyclical buffers are intended to be built up in the good times so they are available for drawing down in the bad times. The fact they are being drawn on highlights the uncertainty surrounding the future health of the economy.

"It will be interesting to see if this does actually get to the parts of the economy that need it because many banks may simply seek to increase their lending to low risk areas. This may mean only a few areas of the economy will really benefit from increased competition and thus lower borrowing costs.

"Triodos Bank however continues to remain in a very strong position with our capital ratio and liquidity both high. Being in such a position means we have, and will continue to, support our customers and the sustainable sectors we lend to."

Post the EU referendum vote, Triodos Bank continues to support the UK’s sustainable economy and people who want to embrace a more conscious approach to banking and finance. We look forward to continuing to provide a genuinely sustainable banking alternative into the future. Read our full EU referendum statement here

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