The Strategist

Moody`s: UK banks are ready for Brexit

10/02/2018 - 16:15

Moody`s issued a forecast about near future of the UK banking system in the light of the country's future withdrawal from the European Union. According to the agency, large banks have done everything possible to level the risks and financial losses associated with Brexit. However, the report notes, difficult times may come for the entire economy of the country.

Håkan Dahlström
Håkan Dahlström
British banks have become more resistant to all sorts of shocks, including Brexit. So says the agency Moody`s, which released on Monday, October 1, its forecast for the future of the country's banking system. The agency’s analysts proceeded from the fact that Britain and the EU will still be able to agree on establishment of a transition period, which should follow the formal exit of the British economy from the block in March 2019. But even in this case, the report says, economic conditions will worsen, and a slowdown is waiting for the country's economy.

“The decline in economic activity is likely to lead to a moderate decline in asset quality,” says senior vice president of Moody`s Alessandro Roccati.

For two years now, the British authorities have been negotiating with Brussels on the terms of the UK leaving the EU, trying to get the most favorable conditions for themselves. The parties have been failing to reach a compromise, but there is less and less time for discussion, and therefore the prospect of “tough Brexit” becomes more and more real, that is, withdrawing from the economic bloc without any agreements and building relations between the parties based on WTO rules.

As Moody`s says in its report, it was the expectation of the worst that helped the British banking system to prepare for Brexit in the best possible way. That, however, will not save the country's banks from financial losses and more serious problems if the British government still fails to reach an agreement with its European counterparts. Just then the banking system will suffer from too much deterioration in market conditions.

Earlier, Head of the Bank of England, Mark Carney, warned the UK government that withdrawing from the European Union without entering into an agreement with the EU on Brexit conditions could adversely affect the country's economy, The Guardian newspaper reported, citing sources. Head of the Bank of England voiced his concerns at a cabinet meeting the day before, on September 13.

According to Mr. Carney, absence of a deal with the EU can lead to an increase in unemployment in the UK and a fall in house prices by 25-35% over three years. According to sources, Head of the Bank of England “compared outcome of Brexit without a deal with consequences of the 2008 financial crisis.” “He (Mark Carney) did not say that everything will be like this, but I think we should admit that the most unfavorable scenario must be considered,” one of the Ministers present at the meeting told the newspaper.