February 27, 2019
By Iain Withers
LONDON (Reuters) – Britain’s banks would be resilient to a chaotic Brexit, even if this leads to a spike in bad loans that hits their profits, credit rating agency Moody’s said.
Lenders’ efforts to boost their capital buffers since the financial crisis has put them in a good position to weather any disruption caused by a no-deal Brexit, Moody’s said in a report on Wednesday.
“UK banks have comfortable capital positions and robust liquidity buffers following years of intense regulatory pressure to increase both risk-weighted and leverage ratios and to strengthen their liquidity positions,” said Laurie Mayers, Moody’s Associate Managing Director and author of the report.
“Under a no-deal scenario, we expect the sector to remain profitable, albeit weakly so,” she added.
Lenders have become increasingly nervous at the prospect of Britain leaving the European Union without a divorce deal as the date of departure, currently set for 29 March, approaches.
HSBC, RBS and Barclays collectively made provisions of around half a billion pounds in full-year results this month in preparation for any downturn precipitated by Brexit.
Bank bosses have also privately lobbied the government for assistance in dealing with a potential spike in business casualties, if delays in cross-border shipments and payments push businesses under.
Moody’s predicts a no-deal Brexit would lead to a sharp economic slowdown, a moderate increase in unemployment and weakness in house prices that would increase credit losses and pressure bank revenues and profits.
But the agency said overall credit conditions would remain resilient.
Moody’s verdict echoes comments made by the Bank of England, which gave Britain’s banks a clean bill of health in November when it tested the potential impact of a chaotic Brexit on their finances in its latest round of stress tests.
While banks are widely seen as resilient going into Brexit, experts have warned a chaotic departure still poses risks.
Andrew Bailey, chief executive of regulator the Financial Conduct Authority, warned earlier on Wednesday that financial markets are still at risk of disruption if there is a no-deal outcome.
Major banks are still not ready for a no-deal Brexit as they contend with delays in licenses for new European Union businesses, staffing problems and snags redrafting contracts.
(Reporting by Iain Withers; Editing by Elaine Hardcastle)