Banks should avoid “extreme risk aversion”

Banks should not resort to a policy of “extreme risk aversion” in the wake of reporting bad-debt write-offs worth hundreds of millions of pounds, according to one expert.

David Kuo, head of personal finance at Fool.co.uk, has suggested that it would be a mistake on the part of financial services firms to punish their responsible customers on the basis of lending issues that have arisen in recent months.

The UK’s banks reported a collective profit rise despite the scale of debts they have been unable to reclaim and Mr Kuo has said these problems were prompted in large part by “excessive risk taking” on the part of lenders.

“Banks need to remember that sensible customers have not contributed to their bad debts and these customers should not be made to pay for the banks’ own mistakes,” he said.

Meanwhile, accountancy firm Grant Thornton predicted recently that tens of thousands of people will enter an Individual Voluntary Arrangement (IVA) this year by way of a debt solution.