The rating agency follows Moody’s in downgrading the mutuals, but unlike Moody’s Fitch has affirmed rather than downgraded Britannia, Norwich and Peterborough and Coventry.
Fitch financial institutions team senior director Matthew Taylor says: “Fitch’s concerns are concentrated on higher-risk lending by societies, which includes specialised mortgages, purchased loans and commercial mortgages. The weakening economic environment has increased the credit risk of the societies, as unemployment has risen and continues to rise, and house prices have fallen.”
The ratings agency says these societies have offered higher-risk buy- to-let, self-cert, second charge and adverse mortgage proposition, which produce slightly greater revenues but which are also showing signs of strain as unemployment rises.
Fitch financial institutions director Andrea Jaehne says: “Fitch expects larger loan impairment charges to erode earnings, making societies more vulnerable in the case of further deterioration in loan quality or other shocks.”
Fitch says arrears in Chelsea’s substantial buy-to-let, self-cert and adverse lending are likely to rise, and it warns that is likely to take some time for the composition of its mortgage book to change.
It also has concerns about certain elements of Newcastle’s buy-to-let mortgage book and large exposure to commercial mortgages. Despite acknowledging the society’s good retail deposit flows, the agency has some concerns over its profitability. Fitch downgraded Principality for its large exposures to commercial loans also.
Fitch downgraded West Bromwich after concerns about the society’s credit risk, especially in light of the single name concentration in its commercial mortgage book. This risk is worsened by the society’s limited ability to generate sufficient pre-impairment operating profit to absorb potential losses in its loan book.
It cites the downgrade of Yorkshire as an anticipation of worse performance due to its relatively high proportion of riskier high LTV and broker-introduced borrowers.