KBRA Releases Research – UK Building Societies: Facing Increasingly Difficult Times

LONDON--()--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.

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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.

Contacts

Gordon Kerr, Head of European Research
+44 20 8148 1020
gordon.kerr@kbra.com

Joanna Drobnik, CFA, Senior Director
Financial Institutions
+353 1 588 1250
asia.drobnik@kbra.com

Kali Sirugudi, Managing Director
RMBS
+44 20 8148 1050
kali.sirugudi@kbra.com

Ken Egan, Director
Sovereigns
+353 1 588 1275
ken.egan@kbra.com

Business Development Contacts

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

Contacts

Gordon Kerr, Head of European Research
+44 20 8148 1020
gordon.kerr@kbra.com

Joanna Drobnik, CFA, Senior Director
Financial Institutions
+353 1 588 1250
asia.drobnik@kbra.com

Kali Sirugudi, Managing Director
RMBS
+44 20 8148 1050
kali.sirugudi@kbra.com

Ken Egan, Director
Sovereigns
+353 1 588 1275
ken.egan@kbra.com

Business Development Contacts

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