KBRA Europe Releases Research – UK Building Societies Vulnerable but Supported by Sound Financial Profiles

DUBLIN--(BUSINESS WIRE)--Kroll Bond Rating Agency Europe (KBRA) releases an updated research report on the UK building society sector amid the coronavirus (COVID-19) pandemic. KBRA believes the overall creditworthiness of the sector remains resilient despite a significant shock delivered by the pandemic to the UK economy and the ongoing Brexit-related economic vulnerabilities.

Key Takeaways

• UK building societies, particularly the large and better-performing midsize or small societies, entered the economic downturn from a strong starting point, underpinned by their sound capitalisation, ample liquidity, stable funding, and healthy asset quality.
• However, the sector is vulnerable to rising unemployment and a downturn in the housing market, given the institutions’ undiversified business models and the uncertainty around the length and the depth of the crisis.
• Successive base interest rate cuts and reduced mortgage lending volumes have intensified existing pressures on margins and earnings capacity, while the recent results were marked by large loan impairment charges, reflecting the difficult economic environment ahead.
• The UK government’s exceptional monetary and fiscal policy intervention has eased an initial asset quality shock across the banking system. However, the inevitable withdrawal of government support schemes and payment holidays is expected to weaken the sector’s asset quality and put the societies’ underwriting standards to the test.

Click here to view the report.

Related Publications

• United Kingdom: Surveillance Report
• Coronavirus (COVID-19): Implications for the UK Mortgage Market
• Coronavirus (COVID-19): UK Building Societies Remain Resilient
• 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 is registered with ESMA as a CRA. Kroll Bond Rating Agency Europe is located at 6-8 College Green, Dublin 2, Ireland.