S&P: UK banks are easing, rather than roaring into the 2020s
In a report published today, S&P Global Ratings considers whether the new decade will bring new hope for UK bank ratings. It would be natural for credit investors to consider taking a rosier view, in light of recent political developments and the ending of a decade in which the news on UK banks was relentlessly downbeat in tone.
We considered that tone appropriate because statutory earnings rarely matched the expectations set by the banks. The subdued global and domestic economies, extended period of low interest rates, and the absence of meaningful UK credit growth, among other factors, has made it difficult for banks to achieve returns above their cost of capital. Moreover, the UK banking industry is facing tech disruption – a theme that will likely run for many years.
That said, our outlook for the UK banking system is consistent with our view on much of the banking industry globally. As UK banks ease their way into 2020, we regard our stable view of the UK banking system as appropriate.
UK bank ratings today are on a firmer footing than they have been for several years. The conclusive outcome of the December 2019 general election implies a more-certain political backdrop for the UK banking industry than has been in the case in every year since the 2014 Scottish referendum. Moreover, the results of the recent Bank of England stress test reaffirmed our view that UK banks are well-positioned to manage a global economic slowdown.
This report does not constitute a rating action.
