Virgin Money boss warns of risk from cheap personal loans

Virgin Money's chief executive has warned that cheap personal loans could threaten the financial system as the banking sector marks ten years since the demise of Northern Rock.

Jayne-Anne Gadhia cautioned over the 'uncertain' outlook. Picture: Neil Hanna

Jayne-Anne Gadhia, who oversaw Virgin Money’s acquisition of the “good” operations of Northern Rock in 2010, claimed personal unsecured loans were priced too low for a good economy “let alone one that might have an uncertain outlook”. In particular, she called for regulators to be vigilant on the booming car finance market.

• READ MORE: Martin Flanagan: Northern Rock was just start of crash

She said: “The chief executive of Lloyds was quoted at the half-year results saying the Bank of England is concerned about credit growth, but we don’t see that on banks’ balance sheets. That is because there is so much growth on car manufacturers’ balance sheets and I think that is a difficult conundrum for the regulators.

“The other area that I find concerning, and Virgin Money are not in this, is personal unsecured loans people might take out for a new kitchen or conservatory.

“The pricing on those loans is very low at the moment. I saw a pricing chart only last week and they are being priced at about 3 per cent.”

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Bank customers sparked a run on Northern Rock in 2007 after the lender’s over-reliance on wholesale markets to fund lending, as opposed to customer deposits, left it perilously exposed when the sub-prime mortgage crisis struck the US. Lengthy queues formed at cash points and shares in banks tumbled.

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