Credit agency lifts Yorkshire BS rating two notches

Yesterday, Moody’s revealed that it had revised the ratings and outlooks for several UK building societies.

Moody’s said the performance recorded by Nationwide, Yorkshire, Coventry and Principality building societies during the past two years, and to a lesser extent by Newcastle and Nottingham, had shown gradual improvement.

Combined with better underwriting standards, this had mitigated the downside risks, Moody’s said.

Marjan Riggi, a Moody’s Vice President and Senior Credit Officer, said: “Today’s upgrade of four building societies reflects their performance since the crisis and our expectations regarding their future performance.

“Our assessment recognises that the UK economy is slowly recovering and that broader banking and regulatory reforms are gradually taking shape.”

Yorkshire Building Society’s subordinated debt rating has been upgraded by two notches from Ba2 to Baa3. In April 2009, Yorkshire Building Society reacted with “disbelief” after Moody’s downgraded its rating by two notches amid concerns about its exposure to falling house prices and specialist mortgage loans.

Two years ago, Moody’s analysed how mutuals would perform if house prices fell by 40 per cent, or an extreme case of 60 per cent, from the peak of the boom.Yesterday’s upgrade could make it cheaper for Yorkshire Building Society to raise funding in the wholesale markets, though all mutuals rely primarily on retail deposits to fund themselves.

Andy Caton, corporate development director at Yorkshire Building Society, said he welcomed the upgrade, adding: “We were expecting this. It had been made public that they were doing this review.

“The view in April 2009 was that the downgrade had been disproportionate. It’s welcome news that an external important credit agency recognises that this sector is on an improving trend.”

The upgrade could mean cheaper products and improve Yorkshire Building Society’s ability to lend, Mr Caton added.

Moody’s said the societies which received upgrades had achieved better asset-quality performance relative to their peers.

Moody’s said: “In some cases, the improvements in asset quality were the result of better underwriting standards and improvements in risk management controls and culture.”

The upgrades were also due to the societies’ continued deleveraging, through a reduction of risky assets which has improved the building societies’ overall risk positioning and the transparency of the risks they face.

Other economic factors, such as moderating house price falls, stabilising unemployment, and low interest rates have also helped.

[email protected]