Moody has updated its methodology for rating banks. In the update, Moody’s has revised certain elements of its Advanced Loss Given Failure (LGF) framework. In particular Moody’s has unified its treatment of Additional Tier 1 (AT1) capital instruments within the LGF framework that removes the distinction between low and high-trigger AT1 assets. Moody’s has also broadened the application of the Advanced LGF framework with an amended description of the general characteristics of Operational Resolution Regimes (ORRs). Moody’s expects that the implementation of these revisions with will result in single-notch upgrades of particular debt classes for about 12% of rated banking groups.
During the month Moody’s raised the outlook for a number of banks and rated building societies to “Stable” as part of a general rating action on the sector to reflect the agency view that the UK’s operating environment will continue to strengthen, and the GDP will return to pre-crisis levels by the end of 2022. This applied to: Barclays UK plc; Coventry Building Society; HSBC UK Bank plc; Leeds Building Society; Principality Building Society; Skipton Building Society; TSB Bank plc and Yorkshire Building Society. In addition, Moody’s upgraded NatWest Markets plc with a “Positive” outlook to reflect the unchanged assumption of extremely low loss-given failure (LGF) as well as the higher capacity of the Group to support its non-ring-fenced banks.
Meanwhile Fitch raised the outlook for a number of banking groups to “Stable” to reflect the recent upward revision of the UK sovereign outlook and the robust performance of the banking sector which as increased their ability to absorb future pandemic pressures. This applied to: Barclays; HSBC; Investec; Lloyds; NatWest; Santander UK and Virgin banking groups. Fitch also raised the outlook for a number of landesbanks to “Stable” as part of a general rating action on the German public bank sector to reflect the recent upward revision of the outlook for Sparkassen-Finanzgruppe (i.e. the German Savings Banks Finance Group), the ultimate provider of support of the sector. This applied to: Bayerische Landesbank; Landesbank Baden-Württemberg; and Norddeutsche Landesbank Girozentrale.