20 of the country’s largest lenders are expecting an additional £788 million in credit losses from borrowers this year, according to research from transaction analytics firm, Fuse.

Analysis of the most recent financial statements of 20 of the UK’s biggest lenders indicate that lenders are expecting losses to exceed £19bn compared to the Expected Credit Loss (ECL) in the previous year when £18.3bn was expected to be lost.

Half of the 20 lenders in the research reported at least a 10% increase in expected losses, with three of these expecting a spike of at least 50% (Atom Bank, Newcastle Building Society and Skipton Building Society).

Fuse said that only four of the UK’s largest lenders were expecting credit losses to shrink in their latest financial reporting compared to 12 months earlier – these included HSBC, Lloyds and Nationwide.

The analytics firm said that a major driver in the rise of expected losses is continued financial pressures on households as well as the erosion of savings cushions and increased reliance on credit. This has led to an increase in expected consumer defaults over the last 12 months.

Previous research from Fuse shows that a quarter (24%) of people are using their savings to pay everyday expenses, but the saving pots of many are either now precariously low or already empty.

As a result, consumer reliance on credit is surging, with 15% of people now wholly reliant on credit to help pay for basic, everyday essentials. 32% of lenders saw an increase in customers defaulting on payments.

Research Bank of England’s Credit Conditions Survey recently reported that 24% of lenders experienced increased default rates in the final quarter of 2023, with the situation likely to get worse as 40% of lenders expect default rates to rise in Q1 2024.

Fuse said this has created a perfect storm which has led to an increase in the proportion of financially vulnerable consumers; 35% of UK lenders reported that they have seen this shift.

Sho Sugihara, CEO and co-founder of Fuse, said: “With banks facing a huge number of consumer defaults over the next 12 months, it’s time for more personalised support solutions to help struggling borrowers.

“With savings pots empty and reliance on credit soaring, there is an immediate need for more effective approaches to assess affordability and identify borrowers who may be in need at an earlier stage before it reaches the point of defaulting on loans and likely causing huge long-term financial issues. Unfortunately, a greater proportion of financially vulnerable customers is only likely to drive defaults higher. With many lenders expanding loan books and broadening their customer base, it’s imperative that they scale up their support approaches too.

“Last year’s Consumer Duty regulations should just be the tip of the iceberg – the financial system is in immediate need of an overhaul to create a fairer, more inclusive model with vulnerable borrowers at its heart. In order for this to happen, lenders need to utilise insights into borrower vulnerability to help them identify points of need before it is too late.”