June 26, 2017 / 4:52 PM / 7 months ago

French finance watchdog warns on growing private sector debt

PARIS (Reuters) - France’s financial stability council warned on Monday against risks from surging corporate and household debt, which it said may warrant regulatory action.

The High Council for Financial Stability (HCSF), which is headed by Finance Minister Bruno Le Maire, said after its quarterly meeting that it was keeping close tabs on “the rise in cyclical risks”.

“If this trend becomes entrenched, the HCSF ... could be led to soon review necessary measures to boost the banking system’s resilience and protect the smooth financing of the economy,” it said in a statement.

In that context, it added that it was preparing a decision at the end of the month on a countercyclical bank capital buffer, which has been set at zero since its creation at the end of 2015.

The central bank has recently flagged concerns about accelerating credit growth in France, which was up seven percent over one year in April for non-financial companies, while household debt rose 5.8 percent and mortgage volumes increased 5.6 percent.

“The strength of growing indebtedness, which has led us to debt levels higher than most of our neighbours, calls for a particular vigilance on the part of authorities,” Bank of France deputy governor Robert Ophele said in a speech last week.

The HCSF said that corporate debt levels varied widely among firms, but said it was giving particular attention to the risk the weakest companies represented to the financial system.

Though many big French firms have binged on cheap debt amid record low borrowing rates, so far that has not translated into higher bankruptcy rates or levels of bad loans, data from the central bank shows.

With a recovery entrenching in France’s real estate market in part due to cheap loans, the HCSF also said faster mortgage growth must not threaten the banking sector nor spur on speculation.

Reporting by Leigh Thomas; Editing by Toby Chopra

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