S&P Global Ratings has said that the major banks in the United Kingdom are considered to be robust enough to cope with a no-deal Brexit, however, the outlook of the sector for the year will hinge on the exit of the United Kingdom from the European Union.
The financial services company issued a “broadly stable” rating on the banking system of the United Kingdom, however, it said that view was based on an orderly Brexit.
While the analysts of the firm said the balance sheets were robust, a disorderly Brexit would provoke some problems for the sector.
The report echoed the findings of the Bank of England last year that the financial system of the United Kingdom was resilient and would be able to continue to serve households and businesses in Britain even in the event of a no deal Brexit and no transition period.
Osman Sattar, a credit analyst at S&P Global, stated: “A no-deal Brexit could result in severe macroeconomic weakness, which would lead to rising personal and corporate U.K. insolvencies and weaker collateral values.”
He added: “In time, this would likely play through to banks’ asset quality and activity, undermining earnings and, possibly, capitalisation to a modest degree.”
He said that these factors would be relatively greater for lenders that are domestically focused.
Last November, all of the major banks in the United Kingdom passed a beefed-up stress test as the Bank of England lauded the resilience of the financial system of Britain.
The bank said that seven banks – Santander UK, Nationwide, Standard Chartered, HSBC, Barclays, RBS, and Lloyds – had three and a half times the capital ratio as compared to the period before the global financial crisis.
The stress test used a scenario, which includes global GDP dropping by 2.4 percent, the UK GDP falling by 4.7 percent, house prices plunging by 33 percent and the unemployment increasing to 9.5 percent, to test the financial stamina of UK banks.
The Financial Policy Committee said that it was satisfied that the banks could continue to serve households and businesses in Britain even in the event of no deal and no transition period.
The test discovered that the banks would suffer losses amounting to £70 billion but still be able to weather the storm without raising more capital.