Moody’s has raised its outlook on UK banks from negative to stable arguing they are more resilient to the challenges of Brexit than they were a year ago.
The rating agency notes capitalisation levels have improved and non-performing loans are down to 2.2 per cent of gross loans compared to 2.7 per cent a year ago.
Moody’s senior vice president Andrea Usai says: “Although we still expect the operating environment to deteriorate given heightened uncertainty prior to the UK leaving the EU, banks are better placed to withstand the tougher conditions.”
Moody’s attributes the increase in UK banks’ regulatory capitalisation levels to profit retention, business and asset disposals, improved data quality and internal model enhancements.
It also notes banks have maintained good access to wholesale markets following the UK’s vote to leave the European Union with the Bank of England’s Term Funding Scheme facilitating access to cheap credit.
The ratings agency notes credit costs are likely to rise, but that lower litigation charges should boost earnings for some banks.
This week consultancy Oliver Wyman warned that banks would have to raise their capital by up to 30 per cent and bear an additional 4 per cent in costs due to Brexit.