Fitch upgrades building societies as funding costs fall
0Ratings agency Fitch has upgraded three building societies’ issuer default ratings and affirmed them on three others.
In an announcement this week, Fitch said that Yorkshire Building Society’s long- and short-term IDRs and viability rating had moved to A-/F1/a- from BBB+/F2/bbb+.
Skipton Building Society’s long- and short-term IDRs and VR moved to BBB/F2/bbb from BBB-/F3/bbb-.
In addition, Leeds Building Society’s short-term IDR has been uprated from F2 to F1.
The agency also affirmed Leeds long-term IDR at A- Similarly, Long-term IDRs were affirmed for Coventry Building Society (A), Principality Building Society (BBB+) and Newcastle Building Society (BB+).
In its announcement, Fitch said: “The six building societies are all mutual mortgage lenders in the UK: their lending is heavily focussed on prime residential mortgage loans and their funding is mostly obtained from customers in the form of saving deposits.
“Over the past year, they have all benefited from cheaper funding costs, from a gradual improvement in the UK operating environment, and from a recovery in the housing market.”
It said that improved performance had stemmed mostly from a marked reduction in customer and wholesale funding costs driven largely by the secondary effects of the governments funding for lending scheme.
“As a result net interest margins have widened across the sector despite a continued low base rate environment,” it said.
In addition, liquidity at all of the building societies has built up following the banking crisis, which is judged by Fitch as a rating strength.
Yorkshire was assessed as having a “fairly conservative” risk appetite with a focus on low-risk prime residential mortgage lending. However, it is more exposed to higher loan-to-value rates than some of its peers.
Following the initial announcement, Fitch upgraded Yorkshire Building Society’s £2.1bn equivalent covered bonds to AAA from AA+, and said that their outlook was stable.
Skipton’s upgrade reflects a strong improvement in its core mortgage and savings business, coupled with a reduced appetite for specialist and commercial real estate loans.
It has also been supported by strong profits posted by its estate agency subsidiary, Connells, Fitch said.
Following the credit crunch, Fitch downgraded the ratings of a number of building societies due to worries over higher-risk lending, and larger loan impairment charges due to rising unemployment at that time.
