Britain's big banks stand to lose as much as a fifth of their profits as the commercial property market implodes, the Bank of England has warned.
The Bank sounded the alarm on a £5bn-plus wave of real estate defaults which could engulf the financial sector before it has even recovered from the sub-prime crisis.
It used today’s Financial Stability Report to warn that, despite falls of more than 15% in commercial property prices, banks have continued to pile into the sector and could now face significant losses.
Although it predicted the global financial crisis may soon be at an end, it warned that banks may have to weather losses from other sources.
The office and professional building market is in the midst of its biggest crash in more than a decade. However, banks have reported no major writeoffs from the slump.
The Bank warned in today's Daily Telegraph that this will not persist.
It projected that if a tenth of outstanding commercial property loans default this could cost the UK banking sector £5.1bn, or 19pc of its annual pre-tax profits.
