KBRA Releases Research – UK Building Societies: Staying Resilient in Turbulent Times

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, persistent inflation, elevated interest rates, geopolitical tensions, and global trade disruption stemming from the new US administration’s policies, all of which continue to weigh on the UK economy. Headwinds in the housing market will also present challenges to UK building societies. However, most are well prepared and should weather the storm with sound credit profiles.

Key Takeaways

KBRA believes the sector can absorb continuing macro pressures. However, building societies remain vulnerable to cost-of-living increases and rising unemployment, as well as a potential housing market downturn, given the institutions’ undiversified business models.
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 remains moderate but appropriate on a risk-adjusted basis, although it has declined from its cyclical peak. The sector’s profitability is expected to come under further pressure due to intensifying competition in the mortgage market, anticipated interest rate cuts, and persistently high funding costs.
The sector’s asset quality remains strong, although KBRA expects the prolonged period of elevated interest rates and continued affordability pressures will contribute to a moderate deterioration over the medium term.

Click here to view the report.

KBRA Releases Research – UK Building Societies: Staying Resilient in Turbulent Times

Key Takeaways

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