Kroll Bond Rating Agency Europe Limited (KBRA) publishes its UK Building Societies: Vital to UK Housing Market report, which focuses on the financial position of UK building societies.
Based on an analysis of publicly available information, KBRA believes that the credit profiles of the large and better-performing midsize building societies-which typically focus on low-risk prime residential mortgages-are comfortably investment grade, reflecting their sound financial profiles and conservative risk appetites. These societies generally have strong asset quality, solid capitalisation, sound funding and liquidity, and adequate risk-adjusted profitability. However, their credit profiles are constrained by the societies' typically limited franchises and undiversified business models, which are highly concentrated in the UK housing market.
At present, smaller building societies also typically have sound financial profiles, reflecting the favourable economic backdrop over the past decade. However, due to their generally higher risk appetite for niche mortgage lending, these smaller institutions are viewed as more vulnerable to a weakening economic environment. Currently, they have strong asset quality and adequate profitability, supported by the benign economic environment to date, with cyclically low loan impairment charges. KBRA views their funding and liquidity profiles as weaker than at the larger building societies, due to the lack of access to wholesale debt markets. Overall capitalisation is sound, but KBRA believes that some of the smaller building societies may have sub-optimal capitalisation for their risk profiles.
Sector challenges include increasingly competitive mortgage and savings markets, a growing regulatory burden (particularly amongst smaller societies), a need to improve cost efficiencies, and higher funding costs due to the closure of government funding schemes and the rising base rates. Building societies are vulnerable to a potential negative economic impact from Brexit, which could be more severe for those institutions with greater exposures to higher-risk lending niches and segments. In light of these challenges, KBRA expects further consolidation in the sector, particularly involving smaller societies.
In this in-depth report, KBRA provides an update on key issues facing the UK economy and housing market, followed by a thorough analysis of the building societies' importance and long-standing role in the UK mortgage market. KBRA also delves into the key financial trends including profitability, asset quality, capitalisation and liquidity/funding. Lastly, KBRA provides short individual summaries of all building societies included in the report.
To access the full report, click here
Related Publications: (available at www.kbra.com
- UK Challenger Banks: An Overlooked Growth Story
- United Kingdom Surveillance Report
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About KBRA and KBRA Europe
KBRA is a full service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus, is recognized by the National Association of Insurance Commissioners as a Credit Rating Provider, and is a certified Credit Rating Agency (CRA) by the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.
View source version on businesswire.com: https://www.businesswire.com/news/home/20190205005704/en/
Contacts:
Analytical Contacts:
Joanna Drobnik, CFA, Director, Financial Institutions
Dublin
+353 1 669 2680
jdrobnik@kbra.com
Joe Scott, Managing Director, Financial Institutions
New York
+1 (646) 731-2438
jscott@kbra.com