Last checked at 
* Consumer credit growth highest since 2005
* Banks chase yield with riskier lending
* Pressure on management to restore profits and boost shares
By Sinead Cruise and Lawrence White
LONDON, May 19 (Reuters) - A surge in consumer lending and arevival of no-deposit residential mortgages are stoking fearsthat Britain's biggest banks may be chasing riskier business toboost flagging returns.
Facing record-low interest rates and rivals keen to stealmarket share, HSBC, Lloyds Banking Group,Barclays and Royal Bank of Scotland havesignalled aggressive lending ambitions in blueprints forprofitability.
But signs of looser lending standards in the crowded marketsfor home loans and unsecured credit have revived memories of asimilar hunt for income just before the 2007 financial crisis,which exposed widespread reckless lending at many banks.
Analysts and investors who have spotted the parallels worrythat stiff competition could erode margins of safety onhigh-risk loans and pave the way for a spike in defaults lateron.
"There are signs of hubris in the banking industry rightnow," said Henderson Global Investors fund manager Ian Tabberer.
"To use a baseball analogy, we are getting towards the sixthor seventh inning of a classic banking cycle, which is whenbanks start to ease their credit standards and start lending topeople who can't really afford it," he said.
Consumer credit in the UK stood at 182 billion pounds at theend of March, according to Bank of England data, the highestlevel since 2010, while the annual growth rate in total consumercredit is 9.3 percent, the highest since 2005.
Net mortgage lending rose by 7.435 billion pounds in March,the biggest monthly increase since October 2007.
Bank of England Governor Mark Carney told the BBC on Sundaythat he was concerned about the level of household debt inBritain, saying it could compound an economic slump in the eventof a British exit from the European Union or another economicshock.
"The challenge is to ensure not too many of the Britishpublic are over-borrowed, because that will make a downturn thatmuch more severe," Carney said on the BBC's Andrew Marr Show.
PRESSURE ON SHARES
The banks' search for income reflects investor pressure.
Shares in Barclays, HSBC, Lloyds and RBS have fallen by anaverage 30 percent in the last 12 months, a trend that bosseshave vowed to reverse with cost cuts and business growth.
In a presentation to investors in March, HSBC said it waslooking to acquire new customers through unsecured personallending products and expand its mortgage broker network.
Over 3.2 billion pounds' worth of loans were advanced tocustomers buying cars on credit in the UK in March, according tothe Finance & Leasing association, up 17 percent on a year ago.
But a survey by Markit showed British households' financialsituation weakened at the fastest rate in nearly two years thismonth, partly due to a lack of wage growth, underlining theperils of a sector-wide push to expand lending.
"The economy might be recovering but many families havenever really seen a recovery of their own - and there is a riskthat some households are turning to credit as a short-term fixto a long-term problem," said Joanna Elson, chief executive ofthe Money Advice Trust.
There are signs that banks in the euro zone, where economicgrowth is even more sluggish than in Britain, and interest rateseven lower, may be taking a similar approach.
Consumer credit in the euro area was up 5 percentyear-on-year in March and February, according to EuropeanCentral Bank data - the fastest rate since June 2008.
Overall mortgage lending was up 3.6 percent in the lastquarter of 2015 from a year earlier, according to the mostrecent figures available from the European Mortgage Federation.
In Germany, some banks are now willing to lend the entirepurchase price of a property, instead of typically requiring aminimum 20 percent deposit. The rise in home loan lending hassparked talk of a house price bubble in cities such as Frankfurtand Hamburg.
EASIER MORTGAGES
In Britain, Barclays now offers a 'Family Springboard'mortgage enabling buyers to borrow 100 percent of a propertyprice with the help of a temporary deposit by a relative in alinked account.
A Barclays spokeswoman said all loan decisions were based onincome and expenditure to ensure repayments were both affordableand appropriate and lending remained responsible andsustainable.
Halifax, part of the Lloyds stable, has increased its upperage limit for mortgage borrowers from 75 to 80, against abackdrop of record low rates, now below 3 percent on average forthe first time on record, according to Bank of England data.
Lloyds, meanwhile, reported a 30 percent rise in autofinance for the first quarter of 2016 compared with the sameperiod a year ago, as well as 4 percent growth in credit cardbalances.
RBS, which already provides one in four loans to small firmsin Britain, has sent 12,500 'statement of appetite' lettersoffering up to 8 billion pounds of loans to small businesscustomers, more than six times the net new lending the segmentachieved in 2015. The state-backed bank also saw its strongestgrowth in mortgages since 2009 last year.
While UK economic output slowed to 2.2 percent last year,there were, admittedly, signs of a pickup among small and mediumenterprises, where turnover rose 50 percent.
All the banks dismissed concerns that they were taking onundue, untimely or poorly-priced risk. They pointed to broadstructural changes such as tougher affordability screening andregulatory capital constraints on balance sheets that aim toprevent lenders and borrowers from hurting themselves, or theeconomy, if loans later turn sour.
Lucian Cook, head of residential research at Savills, said regulators had acted to prevent a repeat of lastdecade's boom-and-bust property cycle by raising the stamp dutyon buy-to-let purchases to curb investor demand.
But others said the temptation to increase profits bylending to those least able to repay would remain until interestrate rises helped banks to earn higher net interest income.
"This is a problem that QE (quantitative easing) has broughton the banking system," Henderson's Tabberer said. "Banks need asteep and positive yield curve. Without it, all theresponsibility of curtailing credit risk is on the management."
(Additional reporting by Andrew MacAskill, and by JohnO'Donnell in Frankfurt; Editing by Kevin Liffey)
