Indicators of loan performance: a comparison of the Bank of England’s published collections of arrears, possessions, provisions and write-offs

Comparison of data collections

Depending on the context of interest, users can select the indicator most suitable for their purpose. In addition to the indicator type, the differing data sources have a number of other features that users should bear in mind – including differences in the sectors by which the data are broken down, the coverage, timeliness and history of the data. These features are explained in this section, and summarised in Table 1. 

Disaggregation offered

Due to the differing data sources and purposes, each indicator offers a different breakdown of the data by sector (see Figure 1).  

MLAR data focuses on secured lending, offering a breakdown of performance between regulated and non-regulated, and securitised and unsecuritised mortgages. Regulated mortgages can broadly be defined as those to owner occupiers. Non-regulated lending is mostly comprised of buy-to-let lending, though includes some other types of mortgages, including owner-occupier loans that were taken out before the relevant regulation came into effect.

Other data collections offer a wider breakdown of the performance of loans and other assets by sector. There are several sector breakdowns that write-offs and provisions data have in common. These include private non-financial corporations (PNFCs), other financial corporations (OFCs), households (HHs) and non-residents. However, there are some differences in definitions that mean these data are not directly comparable. Further detail of definitions can be found in the MLAR guidance notes  and the statistical form definitions.

Coverage

The MLAR data has full coverage of the regulated mortgage market, covering all firms that are authorised to undertake and administer regulated mortgage lending. The unregulated lending by these firms is also captured. The firms include banks and building societies as well as other authorised lenders. Activity by lenders with only non-regulated lending is not captured.

For write-offs and provisions, data are collected to capture the majority of the market. For provisions on Form PL, the current coverage of the quarterly collection is approximately 95% of the stock of provisions. For write-offs on Form WO, the current coverage is approximately 70% of total lending by UK MFIs to other UK residents. Grossing up techniques are applied by the Bank to estimate the remainder of data for non-reporting institutions. This enables estimates of data for the whole market to be produced and published.

Timing 

Frequency/ reporting timeline

All three data sets are collected quarterly. The data on write-offs are published eight to nine weeks after quarter-end, whilst arrears and possessions data are published approximately ten weeks after quarter-end. The quarterly provisions data is published annually, approximately seven months after year-end.

Series start date

The arrears and possessions data form part of a more recent collection, having only been collected and published since Q1 2007. For provisions, a slightly longer-time series is available with the data starting from Q1 2004. The write-offs data introduced here have been collected since Q1 2008, however prior to this some write-offs data were collected quarterly on a slightly different basis. 

Other considerations

With the introduction of the new International Financial Reporting Standard (IFRS) 9, a new expected-loss impairment model for loans has been introduced. Under the previous model, lenders were only required to recognise credit losses, and hence make a provision, when evidence of a loss was apparent, for example through a missed payment. Under the new ‘expected credit loss’ framework banks are required to recognise potential losses at all times, taking into account past events and current and projected economic conditions. Under the previous model, lenders would provision for a portion of all loans extended regardless of individual risk profiles. This was known as a ‘general provision’. Under the new framework, lenders should assess the risks of assets individually, so all provisions should be ‘specific provisions’. 

The more timely recognition of bad and doubtful debts is expected to cause an increase in the total amount of provisions when reporting institutions adopt IFRS 9. For Form PL this change took effect from 2018 Q1. It is also expected that there will be a corresponding increase in the release of provisions as debt obligations are met and provisions are unwound.

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