Government measures will shore up British banks’ creditworthiness, says Moody’s
Measures introduced by the Bank of England and Treasury to support the UK economy as it grapples with the coronavirus pandemic will support British banks’ creditworthiness, according to ratings agency Moody’s.
On Tuesday, Chancellor Rishi Sunak announced a financial support package including up to £330m of loan guarantees, equivalent to 15 per cent of GDP, designed to complement measures introduced by the BoE on the same day.
In a report released today, Moody’s analysts said that while the extent to which the measures would mitigate economic damage caused by coronavirus was unknown, they would nevertheless “help limit a decline in banks’ asset quality, and therefore support their creditworthiness”.
Moody’s said the scale of the measures introduced by the Treasury and central bank “underlines the gravity of the situation”.
These include short-term funding from the BoE at below-market rates for medium and large corporates, tax relief for small business and shops, and a pause on mortgage payments for borrowers in financial difficulty.
“While businesses small and large will welcome short-term relief from cash-flow constraints,
the extent to which the new initiatives will mitigate the damage to the economy and the
resulting cost to the banking system remains unknown because the magnitude and duration
of the coronavirus-induced disruption itself is highly uncertain,” said analysts.
The heads of some of the largest British banks have warned that the economic fallout from the Covid-19 was likely to hit their already under-pressure earnings.
Royal Bank of Scotland chief executive Alison Rose said the BoE’s recent 50 basis-point emergency rate cut was likely to hit the lender’s income, but said it was “too soon” to know the overall likely impact of the virus.
Lloyds boss Antonio Horta-Osorio described the coronavirus pandemic as “a huge external shock”, and said the bank would delay part of a £3bn technology investment programme to maintain its capital levels.