DUBLIN–(BUSINESS WIRE)–Kroll Bond Rating Agency Europe Limited (KBRA) releases a report on the UK building society sector amid the current market turmoil. KBRA believes the overall creditworthiness of the UK building society sector remains resilient despite uncertainties around the coronavirus (COVID-19) pandemic’s impact on the UK economy and the ongoing Brexit-related economic vulnerabilities.
Key takeaways from the report include:
- A traditional focus on residential mortgage lending by the UK building societies has left them vulnerable to a downturn in the housing market amid the coronavirus-related economic slowdown coupled with rising unemployment and declining consumer confidence. Smaller societies may be more vulnerable due to their generally higher risk appetite for niche mortgage lending.
- In KBRA’s view, the sector has built up resilience in the last decade and its creditworthiness is supported by strong asset quality, stable funding, ample liquidity, and generally solid capitalisation and leverage. This provides a strong starting point heading into this economically uncertain period, particularly for the large and better-performing midsize or small societies.
- The economic slowdown and industrywide mortgage payment holidays are expected to weaken asset quality at the building societies, particularly if the economy does not rebound quickly. However, the measures taken by the government to ease pressure on borrowers, combined with typically conservative loan-to-value ratios, should help to reduce loan losses to manageable levels.
- Profitability of building societies has been hit by an escalating price war in the mortgage market but remains adequate on a risk-adjusted basis. Nevertheless, it is expected to come under further pressure from squeezed net interest margin, subdued loan growth or loan contraction, and higher loan impairment charges, which are anticipated to rise from their unsustainable low levels, as the economic environment weakens.
As events surrounding the crisis unfold, our thoughts are with the individuals and families who have been affected by the virus.
Click here to view the report.
- United Kingdom: Surveillance Report
- UK RMBS: Market Uncertainty, BTL Demand to Remain
- UK Building Societies: Vital to UK Housing Market
About KBRA and KBRA Europe
KBRA is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and is a certified Credit Rating Agency (CRA) with the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA. Kroll Bond Rating Agency Europe Limited is located at 6-8 College Green, Dublin 2, Ireland.
Joanna Drobnik, CFA, Director, Financial Institutions
+353 1 588 1250
Joe Scott, Managing Director, Financial Institutions
+1 (646) 731-2438
Alan Madden, Director, Sovereigns
+353 1 588 1230
Kali Sirugudi, Senior Director, RMBS
+44 208 148 1050
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