The ratings agency has downgraded its Banking Industry Country Risk Assessment for the UK and the US from Group 2 to Group 3, placing its security on a par with the likes of Austria, Portugal and Chile.
S&P says the review will not lead to ratings changes but may contribute to actions on a case-by-case basis.
“We no longer consider the U.K. to rank among the most stable and low-risk banking systems globally in the light of the weak economic environment, the reputational damage to the industry, and the increased dependence on state support programs. The macroeconomic and banking industry wide factors that affect the BICRA influence all bank counterparty credit ratings in the U.K.
“The revision will not automatically lead to changes in the counterparty credit ratings on U.K. financial institutions. It could, however, contribute to future rating actions on specific entities.”
Among concerns for S&P is the high leverage in the UK economy, highlighting households and the property and construction related sectors in particular.
“We believe that the unwinding of high leverage will lead to an elevated rate of loan losses for the next two years. In addition, we believe that deleveraging will weigh on the growth prospects for the U.K. relative to many other large mature market economies and lead to weak-to-moderate earnings for the domestic operations of U.K. banks.
“The weak U.K. economy will continue, in our view, to constrain U.K. banks’ collective credit profile more than most other major mature market economies around the world.”