Building societies hit back over ratings downgrade
BUILDING societies have hit back after some of the sector’s smaller players came off worst in a mass downgrade of British lenders.
The Building Societies Association said the verdict by Moody’s, as part of a downgrade of 12 British institutions, reflected the removal of an implicit guarantee of Treasury support for mutuals in the event of possible failure.
Hilary McVitty, a BSA spokesman (pictured), said: “We see it as a normalisation. What they are doing is removing some of those extraordinary levels of support they put in place… As far as building societies are concerned they have generally improved their levels of profitability, capital and liquidity.”
The core tier one capital ratio – a key measure of financial strength – is 12.8 per cent across the building society sector, above the conditions laid out by the Basel III agreement, McVitty added.
On Friday credit ratings agency Moody’s issued a one-notch downgrade of Lloyds Group (to A1 from Aa3), Santander UK (to A1 from Aa3), Co-Operative Bank (to A3 from A2), a two-notch downgrade of RBS (to A2 from Aa3) and Nationwide Building Society (to A2 from Aa3); and downgrades of one to five notches of seven smaller building societies, as revealed in City A.M.
The worse-than-expected downgrades for some smaller lenders means they could face higher borrowing costs at a time when trading conditions are already difficult.
Building societies are less dependent than banks on accessing the wholesale money market, however, because they draw most of their funding from retail deposits.
The financial crisis triggered a series of building society mergers but the willingness of larger mutuals to buy struggling smaller rivals means assets have stayed within the industry. Over the last three years Yorkshire Building Society, for example, has merged with Barnsley, Chelsea and Norwich & Peterborough.