Page last updated at 16:30 GMT, Friday, 22 May 2009 17:30 UK

Building societies' ratings cut

West Bromwich
West Bromwich says it remains a safe home for savings

Credit ratings agency Fitch has downgraded five UK building societies amid weak economic conditions.

The agency has cut the long-term issuer default ratings at the Chelsea, Newcastle, Principality, West Bromwich and Yorkshire building societies.

The agency said "signs of strain" might be seen on mortgages handed out by the quintet as unemployment rises.

But it paints a less gloomy picture than Moody's which recently downgraded nine societies fearing bad debts.

Fitch has also put the Skipton Building Society on negative watch, without actually downgrading its rating.

Optimism

At the Building Societies Association (BSA) conference earlier this week, building societies reported that 2009 would continue to be challenging, but there was optimism for an end to the downturn in 2010.

The West Brom wishes to stress that it remains a safe and secure home for members' savings
West Bromwich Building Society spokesman

"The last 12 months have certainly been tumultuous, but it's encouraging to see that the majority of building societies have a positive outlook," said BSA director general Adrian Coles.

However, Fitch said that the weakening economic environment has increased the credit risk of the five societies, as unemployment had risen and continues to rise, and house prices had fallen.

"Fitch's concerns are concentrated on higher-risk lending by societies, which includes buy-to-let, self-cert, adverse, purchased loans and commercial mortgages," said senior director Matthew Taylor.

It said societies' loan books were mostly made up of low-risk, owner-occupied residential mortgages, but higher-risk mortgages produced slightly greater revenues but also showed signs of strain as unemployment rose.

It noted that societies had been successful in raising retail deposits and in the first months of 2009 and had reduced risk on their balance sheets, but this meant they had less flexibility in the future.

Response

A spokesman for the the West Bromwich, which has seen its long-term outlook downgraded from an A- to a BBB+, said: "The West Brom wishes to stress that it remains a safe and secure home for members' savings.

"Ratings are used by City and other institutions, who invest with banks, building societies and other corporate bodies. They are not issued with the aim of advising individual retail investors, who provide the vast majority of the West Brom's funding."

Earlier this week, another rating agency, Standard and Poor's, revised its outlook for UK public debt to "negative" from "stable" for the first time since it started analysing its public finances in 1978.

It said the UK's finances were deteriorating faster than expected. The change came as data confirmed that new government borrowing has soared, to a record of almost £8.5bn in April.



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