UK banks as exposed to eurozone troubles ‘as France and Germany’

British banks are as exposed to troub­led eurozone nations as their French and German peers, according to the annual International Monetary Fund (IMF) report on Britain.

British banks’ exposure to the Greek, Irish, Spanish and Portuguese economies accounts for 14% of national GDP, the same figure as for French and German banks. Britain’s exposure is more concentrated in Ireland, says the IMF, while that of France and Germany is more focused on Greece.

“Negative shocks in any of these markets could necessitate further write-downs and weaken British banks’ capacity to support the domestic economic recovery with adequate credit supply,” the report warns. (article continues below)

“Additional spillovers could arise from the important role that foreign banks play in the UK, mostly via London’s wholesale financial services industry, but also in retail finance.”

Britain’s banks have consolidated foreign assets of more than 180% of GDP, the IMF reports, although this ­figure has come down over the past two years. British exposure is of particular concern to America and its troubled commercial real estate sector, as well as to other economies in Asia and western Europe.

Last week the eurozone’s troubles intensified as world leaders met for the G20 summit in Seoul. Speculation grew that Ireland would seek a bail-out as its government’s financial survival plans met with widespread scepticism. Ireland is spending cash to avoid international debt markets this year and has predicted that its deficit will peak at 32% of GDP following a crippling banking crisis.

Spain, which also has large public debts as well as unemployment of more than 20%, said it had non-existent GDP growth in the third quarter.

In Portugal, Banco Espirito Santo (BES), one of the country’s five largest banks, ended its agreement with Fitch after the ratings agency downgraded it again on Monday.

Fitch had downgraded BES three times in little more than three months, but BES says there is insufficient justification for the decisions, even though Portuguese banks rely on the European Central Bank for funding.

Fitch also downgraded Millennium BCP, a Portuguese lender – which ­criticised its verdict – and two other ­Port­uguese banks.