Building Societies Have Credit Rating Down Graded
Over the course of the past two years there have been some high profile casualties of the credit crunch within the banking sector, most notably Northern Rock, royal Bank of Scotland and the Lloyds Group, who have all been bailed out with loans from the government.
But it is not only banks which have been affected, a number of building societies have also felt the impact of the credit crunch. The credit rating company Fitch has announced that it has downgraded its ratings for five of the UK’s leading building societies, due to the risks associated with a large proportion of the loans currently standing on their books.
The affected lenders are the Chelsea, Newcastle, Principality, West Bromwich and Yorkshire building societies, all of whom have had their ratings downgraded due to their exposure to loans in high risk categories such as self certification, buy to let, bad credit loans and commercial lending, along with additional loan books which have been bought in from other loan companies.
In the case of the Chelsea, there is concern over the increasing level of loan arrears on their buy to let, self certification and adverse credit loans, which is expected to get worse over the course of the year. Newcastle has been affected by its exposure to buy to let and commercial loans, whilst Yorkshire building society has a large proportion of high loan to value lending within its loan book.
Andrea Jaehne of Fitch said “Fitch expects larger loan impairment charges to erode earnings, making societies more vulnerable in the case of further deterioration in loan quality or other shocks.” The Skipton has also been placed on ratings watch, but has not been downgraded as yet.
On a more positive note, other building societies which have retained their ratings include: the Coventry, Leeds, Norwich and Peterborough and Brittannia.
