KBRA Releases Research – UK Building Societies: Resilient Financial Profiles Amid Ongoing Challenges
May 01 2024 - 9:52AM
Business Wire
KBRA releases a research report evaluating the UK building
society sector.
KBRA believes the overall creditworthiness of the UK building
society sector remains resilient despite continuing challenges
related to Brexit, the post-pandemic recovery, elevated inflation,
interest rate rises, and Russia’s invasion of Ukraine, all of which
weigh on the UK economy. Headwinds in the housing market, as noted
in our previous report, will continue to present challenges to UK
building societies. However, most are well prepared and should
weather the storm with strong credit profiles.
Key Takeaways
- Asset quality is expected to deteriorate in the coming quarters
as higher interest rates and inflationary pressures continue to
feed through to the economy and customer affordability.
- Building societies are vulnerable to cost-of-living increases
and rising unemployment, as well as a potential housing market
downturn, given the institutions’ undiversified business
models.
- KBRA believes the sector can absorb continuing macro pressures.
Forthcoming challenges and risks to UK building societies’
profitability and asset quality are mitigated by their generally
sound capitalisation, ample liquidity, and stable funding. Further,
societies’ typically conservative loan-to-value (LTV) ratios and
performing mortgage books should also help to mitigate loan
losses.
- In KBRA's view, building societies’ profitability is adequate
on a risk-adjusted basis but remains moderate. The sector’s
earnings will likely keep benefitting from higher interest rates in
the coming quarters, but we expect increased loan impairment
charges and the ongoing slowdown in mortgage lending to pressure
profitability.
About KBRA
KBRA is a full-service credit rating agency registered in the
U.S., the EU, and the UK, and is designated to provide structured
finance ratings in Canada. KBRA’s ratings can be used by investors
for regulatory capital purposes in multiple jurisdictions.
Doc ID: 1004115
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Joanna Drobnik, Managing Director +353 1 588 1250
asia.drobnik@kbra.com
Ken Egan, Director +353 1 588 1275 ken.egan@kbra.com
Kali Sirugudi, Managing Director +44 20 8148 1050
kali.sirugudi@kbra.com
Gordon Kerr, Managing Director, Head of European Research +44 20
8148 1020 gordon.kerr@kbra.com
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Adam Tempkin, Director of Communications +1 646-731-1347
adam.tempkin@kbra.com
Business Development
Mauricio Noé, Co-Head of Europe +44 20 8148 1010
mauricio.noe@kbra.com
Miten Amin, Managing Director +44 20 8148 1002
miten.amin@kbra.com