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Fitch hits UK building societies with further downgrades

Fitch has downgraded several more building societies’ debt ratings as well as some of their individual ratings.

The ratings agency has downgraded Newcastle and Skipton’s long-term Issuer Default Ratings and senior unsecured debt ratings. Fitch has also downgraded nine societies’ senior unsecured debt ratings.

Previously, senior creditors received substantial protection by ranking ahead of depositors, so Fitch had rated senior debt one notch above the IDR based on this. However, intervention by the Government in the case of the Dunfermline, where member deposits were transferred to another society undermines the case for continuing to rate senior debt one notch above the IDR. It has therefore decided to rate senior debt holders at the same level of depositors.

The ratings agency has also downgraded Leeds and Newcastle’s individual ratings – Fitch attributes the downgrades to the societies’ commercial loan books. Also, the ratings agency has put the lower tier 2 debt of Chelsea and Newcastle on negative watch.

It has also put the lower tier 2 debt and permanent interest bearing shares Principality on Rating Watch Negative.

Fitch Financial Institutions team Senior Director Matthew Taylor says: “Fitch’s concerns continue to be concentrated on higher-risk lending by societies, which includes buy-to-let, self-cert, adverse, purchased loans and commercial mortgages.

“Problems with commercial loans could pose meaningful challenges, given that some societies have large exposures to individual names. At the same time, higher funding costs are eroding revenues, and reducing the cushion available to absorb larger loan impairment charges.”

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