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Moody's downgrades UK banking system to negative

Staff Writer | July 21, 2016
Moody's Investors Service changed the outlook on the UK's banking system to negative from stable, due to uncertain Brexit trade talks.
UK banking
Britain   The increased uncertainty surrounding Brexit trade talks
Moody's said the change reflected the increased uncertainty surrounding Brexit trade talks with the European Union which would lead to weaker credit fundamentals for the country's banks in the next 12-18 months.

Carlos Suarez Duarte, a senior vice-president at Moody's said: "Increased uncertainty about the UK's future trade relationship with the EU will likely lead to reduced confidence and lower investment and consumer spending in the UK.

"This will, in turn, pressure revenues, asset quality and profitability metrics for all banks in the UK, though some are more resilient to these pressures than others."

On 8 July, Moody's said UK banks' operating environment would weaken and forecast real gross domestic product growth in the country to slow to 1.5% in 2016 and 1.2% in 2017.

Its previous base case expectations were 1.8% in 2016 and 2.1% in 2017.

Moody's said it expected UK banks to see their asset quality worsen, with problem loans rising from a low 2.7% of gross loans as of the end of 2015.

But deterioration starting in 2017 will be gradual, with low levels of unemployment and low interest rates which would alleviate risk.