British banks face a possible downgrade in their credit ratings should the UK leave the EU with no deal in March 2019, according to a report from S&P Global Ratings.
The ratings agency said UK lenders are set to remain “stable” over coming years, but could be derailed by “disruptive Brexit”.
“We believe the risk of a disruptive Brexit in March 2019 is increasing as negotiations continue,” the report said, adding that UK banks’ earnings and balance sheets are “solid and provide a substantial cushion to withstand potential turbulence from political and economic events”.
However, it warned that “our current ratings are unlikely to be consistent with a disruptive Brexit accompanied by a severe economic shock”.
“We could therefore lower outlooks and/or ratings if we thought a materially adverse scenario were becoming increasingly certain,” it said.
Banks, though, will be largely unscathed should the government strike a transitional deal which would run until at least 2020, S&P said, although it warned the risk of no deal is growing.
In the case of an “orderly Brexit”, broadly stable economic indicators are likely, including “moderate GDP growth and low unemployment”, along with maintaining low level of loan impairments.
A no-deal Brexit, though, presents a “clear downside risk” for the UK economy, including the possibility of ratings action for domestic-orientated UK banks, reflecting more difficult trading conditions.