British government policy of no bailout places large banks at risk of possible credit downgrades

London, England, United Kingdom (AHN) – Credit ratings agency Moody’s placed major British banks on review because of a new British government policy that no bailout would be provided to financial institutions with problems.

Moody’s hinted that 14 banks and building societies may face possible credit rating downgrades over its senior debt and deposit ratings.

The 14 banks and building societies for review include Lloyds, Royal Bank of Scotland and Santander UK.

Elisabeth Rudman, senior credit officer and bank analyst at Moody’s, said the review is not because of the financial institution’s deterioration in the banking system’s financial strength or the government, but in response to the coalition government’s guidance on the no bailout policy.

Moody’s review, expected to last for three months, could cause an increase in the banks’ borrowing costs. The review includes an assessment of the level of government support available and other factors that could lead to a rating downgrade.

The 11 other banks and building societies that would undergo the Moody’s review are:

• Bank of Ireland Cooperative
• Bank Coventry Building Society
• Nationwide Building Society
• Newcastle Building Society
• Norwich & Peterborough Building Society
• Nottingham Building Society
• Principality Building Society
• Skipton Building Societ
• y West Bromwich Building Society, and
• Yorkshire Building Society.

Barclays and Hong Kong and Shanghai Banking Corporation are excluded from the review, but Moody’s have downgrade Barclays to a negative rating from stable and affirmed HSBC’s negative rating.

It is not only the British banks which have been downgraded or are at the risk of a downgrade by ratings agencies. Even the British government’s local and foreign currency sovereign credit rating suffered.

Dagong Global Credit Rating Company, a Chinese rating agency, downgraded U.K.’s rating on Tuesday to A+ from AA- with a negative outlook for solvency. Dagong explained the downgrade to the worsening debt repayment capability of Britain and difficulty in improving its sovereign credit level in a moderately long term basis.

The Chinese rating agency, which had blamed Moody’s, Fitch and Standard & Poor’s for the global financial crisis for failing to properly disclose risk of western banks, said it expects Britain’s economy to register minimal or no improvement in the next 24 months.

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