Capital requirements and base rate cut hit lenders, PRA admits

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Lenders are suffering having taken a hit from both capital requirements and record low interest rates, according to the new head of the PRA.

Speaking at the City Banquet at Mansion House on Wednesday night, Sam Woods said that “many banks have simply not yet adapted to the new prudential constraints or the lower-rate environment” and that this is a “first order issue” for the PRA and the Bank’s Financial Policy Committee, the Telegraph reports.

In March, the Basel Committee on Banking Supervision said banks could no longer use their own models to calculate “operational risk”, while in August the BoE cut the base rate to 0.25 per cent, significantly impacting on lenders’ margins.

The cost of misconduct is also “hurting banks”, according to Woods. Yesterday Lloyds Banking Group said it had set aside a further £1bn to compensate for mis-sold PPI, bringing the total the bank will have spent for this purpose to £17bn.

The warning from Woods came as banks began to issue third-quarter results, which provided further evidence of the stresses caused by rates.

Santander’s UK division reported profits of £311m for the third quarter, and £967m for the first nine months of the year, a drop of 11 per cent on the previous year.

Further bank results are expected today.