DUBLIN & NEW YORK--(BUSINESS WIRE)--Kroll Bond Rating Agency (KBRA) releases a new report titled, “UK Challenger Banks: An Overlooked Growth Story”. The report focuses on financial position of the UK challenger banks, which are growing market share in the UK’s relatively concentrated banking sector.
KBRA believes that the credit profiles of the larger and more established challenger banks, typically with sizeable portfolios of prime residential mortgages, are comfortably investment grade, reflecting their fundamentally sound financial profiles, but constrained by far lower diversification when compared to larger institutions. These banks typically have healthy asset quality, solid capitalisation, adequate funding and liquidity, and low but improving profitability.
Less established and smaller challenger banks typically have sound financial profiles, with adequate profitability and healthy asset quality, reflecting the favorable economic backdrop over the past decade. KBRA views their funding and liquidity profiles as adequate, but weaker than at larger challengers, due to the lack of diversification and more price sensitive customer base. Overall capitalisation is satisfactory, but KBRA believes some of the smaller challenger banks may have sub-optimal capitalisation for their risk profiles.
Challenges include lack of product diversification, need to further streamline or maintain cost structures, increasing regulatory burden, and higher funding costs. The banks are vulnerable to a potential negative economic impact from Brexit, which could be more severe for those banks with substantial exposures to niche and/or unsecured lending markets. In light of these challenges, KBRA believes that there will be an increased consolidation in the market.
To access the full report, click here.
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 recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and a certified Credit Rating Agency (CRA) by the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.