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Moody’s says UK banks can withstand no-deal Brexit

While a UK withdrawal from the European Union (EU) without an agreed deal threatens to trigger a spike in bad loans that impacts on the profits of Britain’s major banks, they could weather the storm says Moody’s

The credit ratings agency reports that lenders’ efforts to boost their capital buffers since the 2008-09 financial crisis has left them well positioned to weather any disruption caused by a no-deal Brexit.

“UK banks have comfortable capital positions and robust liquidity buffers following years of intense regulatory pressure to increase both risk-weighted and leverage ratios and to strengthen their liquidity positions,” said Laurie Mayers, Moody’s associate managing director and author of the report.

“Under a no-deal scenario, we expect the sector to remain profitable, albeit weakly so,” she added.

No-deal nerves

Lenders are growing increasingly concerned at the prospect of the UK leaving the EU without a divorce deal agreed as the scheduled departure, currently set for 29 March, approaches.

HSBC, RBS and Barclays collectively made provisions of around £500 million in full-year results this month in preparation for any downturn precipitated by Brexit.

Bank bosses have also privately lobbied the UK government for assistance in dealing with a potential spike in business casualties, if delays in cross-border shipments and payments push businesses under.

Moody's predicts a no-deal Brexit would lead to a sharp economic slowdown, a moderate increase in unemployment and weakness in house prices that would increase credit losses and pressure bank revenues and profits.

However the agency said overall credit conditions would remain resilient.

Potential disruption

Moody's verdict echoes that of the Bank of England, which last November gave UK banks a clean bill of health when it tested the potential impact of a chaotic Brexit on their finances in its latest round of stress tests.

While banks are widely seen as resilient going into Brexit, experts have warned a chaotic departure still poses risks.

Andrew Bailey, chief executive of regulator the Financial Conduct Authority (FCA), warned this week that financial markets are still at risk of disruption if there is a no-deal outcome.

Major banks are still not ready for a no-deal Brexit as they contend with delays in licences for new EU businesses, staffing problems and snags redrafting contracts.

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