From Comments
The recent Bank of England Stability Report tested 'bad outcome scenarios' looking at residual values and was nnot overly concerned on the impact to the lenders:
In a hypothetical scenario where car values at the end of
contracts turn out to be 20% lower than expected by lenders
at origination — and all PCP borrowers returned their vehicles
contracts turn out to be 20% lower than expected by lenders
at origination — and all PCP borrowers returned their vehicles
— Bank staff estimate that market-wide PCP losses could be
3%–6% of the total outstanding stock of car finance. Other
things equal, if these loss rates were experienced on the major
UK banks’ dealership car finance portfolios, it would imply a
reduction of 2–7 basis points in major UK banks’ aggregate
CET1 ratio.(2)
3%–6% of the total outstanding stock of car finance. Other
things equal, if these loss rates were experienced on the major
UK banks’ dealership car finance portfolios, it would imply a
reduction of 2–7 basis points in major UK banks’ aggregate
CET1 ratio.(2)
That is, from a starting point of 13.92%, the
ratio would fall to 13.85%–13.90%.
ratio would fall to 13.85%–13.90%.
Market-wide losses would
rise to 7%–10% of the outstanding stock in a more severe
scenario where car values at the end of contracts turn out to
be 30% lower than originally expected.
rise to 7%–10% of the outstanding stock in a more severe
scenario where car values at the end of contracts turn out to
be 30% lower than originally expected.
If these loss rates
were applied to major UK banks’ portfolios, they would imply
a reduction of 7–11 basis points in their aggregate CET1 ratio
were applied to major UK banks’ portfolios, they would imply
a reduction of 7–11 basis points in their aggregate CET1 ratio
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