However, the ratings firm said that it maintains a negative outlook on the long-term debt and deposit ratings of the large banks, because it believes that the UK authorities would prefer to avoid using taxpayer support in the event of future collapses. The EU is also introducing rules that would impose losses on creditors rather than taxpayers if a bank were to get into trouble.
Moody’s latest statement said that although prospects for economic growth are still low, unemployment has not increased as much as in previous recessions, thereby contributing to a stabilisation in banks’ asset quality.
In addition, the ratings agency believes that the banks’ capital position will improve as a result of new and stricter regulation, which would mean that they would be better placed to absorb loss and will compare favourably with their European peers.
Moody's has conducted its own stress tests and concluded that the five major UK banks, would be able to absorb losses under very stressed conditions.
Their tier one ratio, which is the measure of capital strength, would be 10.3 per cent under a base scenario and fall to 6.9 per cent under the more severe stressed scenario.
Last month the Prudential Regulation Authority (PRA), the new regulator of major lenders, published the results of its own stress tests and ordered Lloyds, RBS, Barclays, the Co-operative Bank and the Nationwide Building Society to increase their capital.
Moody’s statement comes as the UK prepares to sell off its 39 per cent stake in Lloyds, with its 81 per cent stake in RBS expected to be disposed of later.
For more information, please contact Glazers, Chartered Accountants London or visit www.glazers.co.uk
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