Press Release|Financial Institutions
KBRA Releases Research – UK Building Societies: Resilient Financial Profiles Amid Ongoing Challenges
1 May 2024 | London
KBRA releases a research report evaluating the UK building society sector.
KBRA believes the overall creditworthiness of the UK building society sector remains resilient despite continuing challenges related to Brexit, the post-pandemic recovery, elevated inflation, interest rate rises, and Russia’s invasion of Ukraine, all of which weigh on the UK economy. Headwinds in the housing market, as noted in our previous report, will continue to present challenges to UK building societies. However, most are well prepared and should weather the storm with strong credit profiles.
Key Takeaways
- Asset quality is expected to deteriorate in the coming quarters as higher interest rates and inflationary pressures continue to feed through to the economy and customer affordability.
- Building societies are vulnerable to cost-of-living increases and rising unemployment, as well as a potential housing market downturn, given the institutions’ undiversified business models.
- KBRA believes the sector can absorb continuing macro pressures. Forthcoming challenges and risks to UK building societies’ profitability and asset quality are mitigated by their generally sound capitalisation, ample liquidity, and stable funding. Further, societies’ typically conservative loan-to-value (LTV) ratios and performing mortgage books should also help to mitigate loan losses.
- In KBRA's view, building societies’ profitability is adequate on a risk-adjusted basis but remains moderate. The sector’s earnings will likely keep benefitting from higher interest rates in the coming quarters, but we expect increased loan impairment charges and the ongoing slowdown in mortgage lending to pressure profitability.
Click here to view the report.
Related Publications
- UK Building Societies: Facing Increasingly Difficult Times
- UK Building Societies: Prepared for Challenges Ahead
- UK Building Societies: Steady Performance Despite Economic Headwinds
- UK Building Societies Vulnerable but Supported by Sound Financial Profiles
- UK Building Societies Remain Resilient
- UK Building Societies: Vital to UK Housing Market