LONDON--(BUSINESS WIRE)--KBRA UK (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 will present challenges to building societies. However, most are well prepared and should weather the storm with strong credit profiles.
Key Takeaways
- 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’ generally conservative loan-to-value (LTV) ratios and performing mortgage books should also help to mitigate loan losses.
- KBRA believes the sector can absorb the continuing macro pressures. However, building societies are vulnerable to cost-of-living increases and rising unemployment as well as housing market downturn, given the institutions’ undiversified business models.
- Building societies’ profitability is adequate on a risk-adjusted basis but remains moderate, in KBRA’s view. The sector’s earnings will likely keep benefitting from higher interest rates in the coming quarters, but we expect increased loan impairment charges (LIC) and the ongoing slowdown in mortgage lending to pressure profitability.
- The sector’s asset quality remains strong, but KBRA expects it to deteriorate in the coming quarters as higher interest rates and inflationary pressures continue to feed through to the economy and customer affordability.
Click here to view the report.
Related Publications
- UK Building Societies: Prepared for Challenges Ahead
- UK Building Societies: Steady Performance Despite Economic Headwinds
- UK Building Societies: Vital to UK Housing Market
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.
