UK banks now stable enough to cope with another crisis
THE UK's banks are now strong enough to face another banking crisis, an influential ratings agency said as it lifted the sector's outlook for the first time since the credit crunch.
Moody's said Britain's brighter economic prospects and lenders' stronger balance sheets are behind its upgrade of the UK banking system to stable from negative – a view it has held since May 2008. The agency added that once regulators' demands for banks to bolster their finances by another £13.4bn have been satisfied, they will be better capitalised than their European rivals.
Moody's said it does not expect the operating environment for banks to worsen, adding profits will rise from their "very low levels", while bad debts will shrink.
The upgrade comes weeks after the Government announced plans to begin the sale of its stake in Lloyds Banking Group – one of a number of lenders bailed out with public funds during the 2007-9 banking crisis – marking a landmark moment in the sector's recovery.
The agency said low unemployment has helped contain bad debts, adding the Bank of England's desire to keep interest rates low will ensure households and businesses can service their debts.
Moody's said: "We believe that UK banks are sufficiently well-capitalised to sustain expected losses from both our central and adverse stress scenarios."
City watchdog the Prudential Regulation Authority recently told banks they must stump up another £13.4bn to plug a bigger-than-expected £27.1bn hole in their finances, under plans to ensure bank finances are strong enough to withstand future shocks.
Moody's said once these demands are met, UK banks will be "well capitalised for the risks they face and will compare favourably to their European peers".