Fitch Ratings Thursday downgraded a couple of large British banks after lowering its expectations of government support for systemically important banks.
The rating agency has trimmed its ratings for Lloyds Banking Group plc and Royal Bank of Scotland Group plc, and placed Barclays plc on rating watch negative. The revisions reflect Fitch’s view that support dynamics are changing in the UK. It notes that not only is the banking system large relative to the UK economy, “but there is also more advanced political will to reduce the implicit support for the country’s banks.”
It says that, while support for the largest banks is likely to remain high until the UK banking sector completes its rehabilitation and some of the more practical aspects of bank resolution can be implemented, it also believes that the potential for the provision of extraordinary support for senior bank creditors is less certain than before.
The negative watch on Barclays also reflects Fitch’s view that “global trading and universal banks have business models that are particularly sensitive to market sentiment and confidence, that are complex and exposed to greater volatility”, it says.