S&P says BOE’s latest stress test confirms UK banks’ resilience
Noting that the UK’s seven major financial institutions all passed the Bank of England’s latest annual stress test, S&P Global Ratings said the results were not a surprise given that the groups are comfortably positioned relative to current regulatory capital and leverage requirements, including buffers.
The results confirm the balance sheet resilience of the major UK banking groups and are consistent with our stable trend on the UK banking sector and our stable outlooks on the majority of the tested institutions.
“While their balance sheets have strengthened materially, UK banks’ earnings remain weak because of sustained low interest rates, mortgage price competition, and the subdued economy. Banks will likely need more time to meet their return on equity targets and some plan to announce targeted restructuring measures in the new year,” said S&P Global Ratings credit analyst Osman Sattar.
Separately, yesterday S&P Global Ratings revised its outlook on the UK (AA/Stable/A-1+) to stable from negative. The sovereign outlook revision reflects our view that the sizeable parliamentary majority of the new government gives it a stronger mandate to progress through the next stage of Brexit negotiations and reduces the potential for a disruptive no-deal departure. We therefore believe the risk of a no-deal Brexit has receded, though we acknowledge it has not disappeared altogether.
The ratings on UK banking groups are unaffected by the outlook revision on the sovereign. Our ratings and mostly stable outlooks on the rated UK banking groups already reflect our view of their resilience to potential downside risks, both domestic and international. In addition, we view the U.K. banking sector’s economic and industry trends as stable.
This report does not constitute a rating action.