29th Jun 2016 08:13
LONDON (Alliance News) - Ratings agency Moody's Investors Service has downgraded its outlook on the UK banking sector and its ratings outlook on 12 banks and building societies following the UK vote to leave the European Union.
Moody's said it changed its outlook on the UK banking system to Negative from Stable, following on from the referendum outcome and subsequent downgrade by the ratings agency to its outlook for the UK Aa1 government bond rating.
Moody's said the change in its ratings outlooks for the 12 banks and building societies reflected a view that the vote to leave the EU will reduce the profitability of these institutions.
"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. This will be negative for banks' credit fundamentals, as reflected in today's rating actions," said Laurie Mayers, associate managing director at Moody's.
Within the changes, Moody's downgraded its outlook for eight banks and building societies to Negative from Stable. This covers Barclays, HSBC Bank, Santander UK, Coventry Building Society, Leeds Building Society, Nationwide Building Society, Nottingham Building Society and TSB Bank.
Moody's also cut the outlook Lloyds Banking Group and Principality Building Society to Stable from Positive and changed the outlook on the UK government-guaranteed senior unsecured debt instruments for Lloyds, Barclays, Bradford & Bingley and NRAM (No1) Ltd to Negative from Stable.
Moody's said it expects the high degree of uncertainty over the UK's future trade relationship with the EU will result in lower GDP growth for the UK over the next two years, in response to diminished confidence and lower spending and investment.
During this period, the ratings agency anticipates reduced credit demand to result in lower business volumes for UK banks, plus higher credit losses due to unemployment and lower asset prices.
The agency also expects the UK will have to renegotiate new "passporting" arrangements with its EU partners, which may lead to additional costs for banks if the final agreements fail to replicate current conditions.
By Sam Unsted; [email protected]; @SamUAtAlliance
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