British banks able to cope with shock of hard Brexit

The UK’s major banks are robust enough to cope with a no-deal Brexit, though the sector’s outlook for 2019 will hinge on the UK’s departure from the European Union (EU), S&P Global Ratings yesterday announced.

The financial services firm issued a “broadly stable” rating on the British banking system, but noted that view was based on an orderly Brexit.

“UK banks' balance sheets are robust, with healthy levels of capital and good asset quality; we therefore believe the sector is well-placed to cope with all but the most severe stresses,” the firm said.

S&P Global Ratings said that, should the UK leave the EU without a deal in March, and as a result, without a transition period, the resulting shock could tip the economy into a recession, depending on the mitigating actions taken by the UK and the EU.

“A no-deal Brexit could result in severe macroeconomic weakness, which would lead to rising personal and corporate U.K. insolvencies and weaker collateral values. In time, this would likely play through to banks' asset quality and activity, undermining earnings and, possibly, capitalization to a modest degree,” the agency added.

In November, all of the UK’s major banks passed a beefed-up Bank of England stress test.

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