UK bank and credit ratings take hits
(29 June 2016 – United Kingdom) Ratings agencies Moody’s Investor Service and Standard and Poor’s (S&P) have lowered their outlook on the UK and its banking system following last week’s referendum to leave the European Union.
Moody’s downgraded the country’s credit rating, and cut its outlook on certain individual institutions following the ‘Brexit’ vote.
“We expect lower economic growth and heightened uncertainty over the UK’s future trade relationship with the EU to lead to reduced demand for credit, higher credit losses and more volatile wholesale funding conditions for UK financial institutions,” said Laurie Mayers, associate managing director at Moody’s, resulting in reduced profitability.
Of the eight banks that Moody’s cut its outlook on, Barclays, HSBC, Santander UK were the largest. The agency also lowered its view on Lloyds Bank and Principality Building Society to stable from positive.
According to Moody’s, there will be little short-term liquidity implications for UK banks given the extensive contingency planning preparations by the Bank of England, regulators and the banks themselves. Still, it warned that the wholesale borrowing market for UK banks would likely become more volatile, resulting in a higher premium on debt issuance.
“This could make funding plans more challenging and further erode net interest margins, but the overall impact should be limited,” the agency said.
Similarly, S&P dropped the UK's credit rating from AAA+ to to AA and kept it on a 'negative outlook' earlier in the week. The downgrade was a first for a top-rated sovereign state. According to S&P’s global sovereign chief, Moritz Kraemer, the agency has "no intention of downgrading any other EU sovereign."
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