Rating Action: Moody's takes action on the ratings of 15 UK banks and building societies

Rating Action: Moody's takes action on the ratings of 15 UK banks and building
societies
12 Nov 2019
London, 12 November 2019 -- Moody's Investors Service ("Moody's") today took rating actions on 15 UK banks
and building societies. The action reflects Moody's view that the operating environment is likely to weaken,
given deteriorating institutional capacity and commitment to fiscal discipline in the UK, together with a
worsening economy. This follows the change in outlook on the UK sovereign debt rating to negative from
stable, which the rating agency announced on 8 November 2019 (Moody's changes outlook on UK's rating to
negative from stable, affirms Aa2 rating; https://www.moodys.com/research/--PR_396604 ).
For all the affected lenders, Moody's affirmed the baseline credit assessments (BCA) and all ratings and
assessments. For eight banks and building societies the rating agency changed the outlook on the long-term
deposit and senior unsecured debt rating (where applicable) to negative from stable, for two to stable from
positive, and for one it changed the outlook to negative from positive, while for four banks and building
societies the outlook remained unchanged: negative (one lender), stable (one), or positive (two). The ratings
and outlooks of all other rated banks and building societies that are domiciled in the UK or in the Crown
Dependencies are unaffected by today's rating action.
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_205156 for the List of
Affected Credit Ratings. This list is an integral part of this Press Release and identifies each affected issuer.
RATINGS RATIONALE
Today's action on UK banks and building societies was triggered by Moody's view that (1) UK public
institutions have weakened, as they have struggled to cope with the magnitude of policy challenges that they
currently face, including those that relate to fiscal policy; and (2) the UK's economic and fiscal strength are
likely to be weaker going forward, and more susceptible to shocks than previously assumed by the rating
agency.
These risks, if materialised, are credit negative for banks; a weaker operating environment will be credit
negative for UK lenders, affecting their asset quality and profitability.
In particular, the net interest margins of many UK lenders have been progressively eroded by a prolonged
period of low interest rates; furthermore, and especially following the ring-fencing of large UK banks, the
residential mortgage market has become increasingly competitive, further reducing the margins for banks. The
impact of the compression in the net interest margins is greater for those lenders that are highly concentrated
in the residential mortgage sectors such as the building societies, but also banks such as Santander UK plc
and Clydesdale Bank PLC. Other lenders such as Lloyds Bank plc have been able to partly offset the negative
pressure on the margins for residential mortgages thanks to the greater diversification of their earnings being
also driven by consumer credit, which has higher risks but also higher returns, lending and provision of fee-
based services to corporates, asset management, and/or insurance.
Following years of moderate economic growth and low unemployment, the cost of risk of UK banks is low in
the European context; in the first nine months of 2019, the five largest UK banks, which have a 47% combined
market share for loans in the country, reported an average 30 basis points annualised cost of risk, which is low.
Furthermore, following years of restructuring, problem loans are low, at just 1.7% of gross loans for the five UK
banks as of end-June 2019. From this low point, however, the agency expects the cost of risk to rise, albeit
moderately, as economic growth slows further.
Moody's does not have any particular governance concern for the banks and building societies included in this
action, and does not apply any corporate behaviour adjustments to them.
FACTORS THAT COULD LEAD TO AN UPGRADE / DOWNGRADE
Upgrades to the banks' ratings is unlikely; however, an affirmation of the UK's sovereign debt rating, and an
unchanged operating environment in the UK, could lead to a return to a stable outlook for the long-term

deposit and senior unsecured debt rating outlooks affected by today's action, or a reversal to positive outlook
for those moved to stable from positive.
Conversely, a deterioration of the banks' operating environment in the UK could lead to a downgrade of the
BCAs and ratings for those banks with a negative outlook on their long-term deposit and senior unsecured
debt ratings. The downgrade of the UK sovereign debt ratings could also lead to a downgrade of the long-term
deposit and senior unsecured debt ratings for Lloyds Bank plc, Nationwide Building Society, and Santander UK
plc.
SPECIFIC ANALYTICAL FACTORS FOR THE AFFECTED BANKS
BARCLAYS BANK UK PLC
Moody's affirmed the BCA and all ratings and assessments of Barclays Bank UK PLC (Barclays Bank UK),
reflecting (1) robust capitalisation, stable earnings from its retail and SME businesses, moderate asset risk as
well as limited exposure to wholesale funding, resulting in a BCA of a3; (2) low loss-given-failure for depositors
of Barclays Bank UK, resulting in a one-notch uplift from the BCA; and (3) a further one-notch of uplift given
moderate probability of government support.
The affirmation of Barclays Bank UK's BCA also takes into account social risk considerations. The bank has
incurred substantial provisions related to the mis-selling of payment protection insurance (PPI). Moody's
expects PPI charges to gradually reduce to zero; nevertheless, as the bank continues to process the
information requests that it received until the 29 August 2019 deadline for UK consumers to claim
compensation, PPI-related charges could remain volatile until at least the end of 2020.
Moody's changed the outlook on Barclays Bank UK's long-term deposit ratings to negative from stable,
reflecting a weakening operating environment in the UK.
CLYDESDALE BANK PLC
Moody's affirmed the BCA and all ratings and assessments of Clydesdale Bank PLC (Clydesdale Bank) and its
holding company Virgin Money UK PLC (Virgin Money UK), reflecting (1) good capitalisation and the potential
for revenue and cost synergies over the next three years, but also limited business diversification, execution
risks from its merger, and weak profitability, resulting in a BCA of baa2; (2) low loss-given-failure for depositors
and senior bondholders of Clydesdale Bank, resulting in a one-notch uplift from the BCA, and high loss-given-
failure for the senior bondholders of the holding company Virgin Money UK, resulting in ratings one notch
below the BCA; and (3) low probability of government support, which does not result in any uplift.
The affirmation of Clydesdale Bank's BCA also takes into account social risk considerations. The bank has
incurred substantial provisions related to the mis-selling of payment protection insurance (PPI). Moody's
expects PPI charges to gradually reduce to zero; nevertheless, as the bank continues to process the
information requests that it received until the 29 August 2019 deadline for UK consumers to claim
compensation, PPI-related charges could remain volatile until at least the end of 2020.
Moody's changed the outlook on Clydesdale Bank's long-term deposit ratings, and on Virgin Money UK's
senior unsecured debt rating to stable from positive, because a weakening operating environment in the UK
offsets the potential for a stronger financial profile following a successful execution of the integration with Virgin
Money PLC, which transferred most of its assets and liabilities to Clydesdale Bank on 21 October 2019.
CLOSE BROTHERS LIMITED
Moody's affirmed the BCA and all ratings and assessments of Close Brothers Limited and its holding company
Close Brothers Group plc (Close Brothers Group), reflecting (1) a solid track record over economic cycles,
strong capital and leverage, strong profitability and short duration of assets, resulting in a BCA of a2; (2) very
low loss-given-failure for depositors and senior bondholders of Close Brothers Limited, resulting in a two-notch
uplift from the BCA, and high loss-given-failure for the senior bondholders of the holding company Close
Brothers Group, resulting in ratings one-notch below the BCA; and (3) low probability of government support,
which does not result in any uplift.
Moody's changed the outlook on Close Brothers Limited's long-term deposit ratings, and on Close Brothers
Group's senior unsecured debt rating to negative from stable, reflecting a weakening operating environment in
the UK.

COVENTRY BUILDING SOCIETY
Moody's affirmed the BCA and all ratings and assessments of Coventry Building Society (Coventry), reflecting
(1) strong asset quality and a high risk-based capital ratio, but also lower-than-peer leverage ratio, as well as
the society's historically high growth rate in mortgage lending, which is partly mitigated by a strong track record
of conservative underwriting standards, resulting in a BCA of a3; (2) low loss-given-failure for depositors and
senior bondholders, resulting in a one-notch uplift from the BCA; and (3) low probability of government
support, which does not result in any uplift.
Moody's changed the outlook on Coventry's long-term deposit and senior unsecured debt ratings to negative
from stable, reflecting a weakening operating environment in the UK and the agency's expectations of
continued pressure on the society's profitability.
LEEDS BUILDING SOCIETY
Moody's affirmed the BCA and all ratings and assessments of Leeds Building Society (Leeds), reflecting (1)
strong capitalisation and sound funding structure, but at the same time heightened credit risk stemming from
the society's rapid expansion of its loan portfolio, which is not fully seasoned, resulting in a BCA of baa1; (2)
low loss-given-failure for depositors and senior bondholders, which results in a one-notch uplift from the BCA;
and (3) low probability of government support, which does not result in any uplift.
Moody's changed the outlook on Leeds' long-term deposit and senior unsecured debt ratings to negative from
stable, reflecting a weakening operating environment in the UK and the agency's expectations of continued
pressure on the society's profitability.
LLOYDS BANKING GROUP PLC
Moody's affirmed the BCA and all ratings and assessments of Lloyds Banking Group plc (LBG), reflecting (1)
low asset risk, stable core earnings and strong current levels of capital, which are, however, more susceptible
to deterioration in a stress scenario than that of most of its peers because of the group's exposures to
unsecured consumer loans and buy-to-let mortgages, resulting in a BCA of a3; (2) moderate loss-given-failure
for senior bondholders, which does not result in any uplift from the BCA, and high loss-given-failure for the
subordinate bondholders, resulting in ratings one-notch below the BCA; and (3) low probability of government
support, which does not result in any uplift, reflecting the loss-absorbing nature of the wholesale bonds issued
by holding companies.
The affirmation of LBG's BCA also takes into account social risk considerations. The bank has incurred
substantial provisions related to the mis-selling of payment protection insurance (PPI). Moody's expects PPI
charges to gradually reduce to zero; nevertheless, as the bank continues to process the information requests
that it received until the 29 August 2019 deadline for UK consumers to claim compensation, PPI-related
charges could remain volatile until at least the end of 2020.
Moody's changed the outlook on LBG's senior unsecured debt to negative from stable, reflecting a weakening
operating environment in the UK.
-- LLOYDS BANK PLC
Moody's also affirmed the BCA and all ratings and assessments of Lloyds Bank plc (Lloyds Bank), reflecting
(1) low asset risk, stable core earnings and stable funding, as well as weak leverage and the rating agency's
expectation that loan impairments will increase, resulting in a BCA of a3; (2) very low loss-given-failure for
depositors and senior bondholders, resulting in a two-notch uplift from the BCA, and high loss-given-failure for
the subordinate bondholders, resulting in ratings one-notch below the BCA; and (3) moderate probability of
government support for depositors and senior unsecured debt, resulting in a further one-notch uplift.
The affirmation of Lloyds Bank's BCA also takes into account social risk considerations. The bank has incurred
substantial provisions related to the mis-selling of payment protection insurance (PPI). Moody's expects PPI
charges to gradually reduce to zero; nevertheless, as the bank continues to process the information requests
that it received until the 29 August 2019 deadline for UK consumers to claim compensation, PPI-related
charges could remain volatile until at least the end of 2020.
Moody's changed the outlook on Lloyds Bank's long-term deposit and senior unsecured debt ratings to
negative from stable, reflecting (1) a weakening operating environment in the UK, and (2) a potentially more
limited capacity of the UK government to support the bank in case of need, as indicated by the negative

outlook on the UK's sovereign debt rating.
NATIONWIDE BUILDING SOCIETY
Moody's affirmed the BCA and all ratings and assessments of Nationwide Building Society (Nationwide),
reflecting (1) a very low stock of problem loans, very high risk-weighted capital ratios, stable revenues,
negative pressure on margins and concentration of revenue and risks in UK residential mortgages, resulting in
a BCA of a3; (2) very low loss-given-failure for depositors and senior bondholders, resulting in a two-notch
uplift from the BCA, and high loss-given-failure for the junior senior unsecured and subordinate bondholders,
resulting in ratings one-notch below the BCA; and (3) moderate probability of government support only for
depositors and senior unsecured debt, resulting in a further one-notch uplift.
Moody's maintained a negative outlook on Nationwide's long-term deposit and senior unsecured debt ratings,
reflecting (1) a weakening operating environment in the UK; (2) margin erosion in the UK residential mortgage
market; (3) the risk that the society issues less debt than envisaged under its current funding plan, resulting in
lower protection for senior unsecured debt and deposits in the medium term, as already incorporated in the
current negative outlook; and (4) a potentially more limited capacity of the UK government to support the bank
in case of need, as indicated by the negative outlook on the UK's sovereign debt rating.
NOTTINGHAM BUILDING SOCIETY
Moody's affirmed the BCA and all ratings and assessments of Nottingham Building Society (Nottingham),
reflecting (1) strong asset quality and capitalisation, weak profitability compared to peers, a solid and stable
funding and liquidity profile, but also geographical concentration in the Midlands and untested ability to access
wholesale debt market, resulting in a BCA of baa1; (2) moderate loss-given-failure assessment for depositors,
which does not result in any uplift; and (3) low probability of government support, which also does not result in
any uplift.
Moody's changed the outlook on Nottingham's long-term deposit ratings to negative from stable, reflecting a
weakening operating environment in the UK, and the agency's expectations of continued pressure on the
society's net interest margin and profitability, exacerbated by its limited scale, which places Nottingham at a
competitive disadvantage.
PRINCIPALITY BUILDING SOCIETY
Moody's affirmed the BCA and all ratings and assessments of Principality Building Society (Principality),
reflecting (1) progress in reducing its legacy loan portfolio, thus improving its asset risk profile, which partially
mitigates continued profitability pressures, as well as the society's strong capitalisation, and on the other hand,
geographical concentration in Wales, resulting in a BCA of baa2; (2) moderate loss-given-failure assessment
for depositors and senior bondholders, which does not result in any uplift; and (3) low probability of
government support, which also does not result in any uplift.
Moody's maintained a stable outlook on Principality's long-term deposit and senior unsecured debt ratings
reflecting the agency's expectation that the society will continue to reduce its legacy book while maintaining its
strong capitalisation and solid funding profile.
THE ROYAL BANK OF SCOTLAND GROUP PLC
Moody's affirmed all ratings of The Royal Bank of Scotland Group plc (RBSG), reflecting (1) its high levels of
capitalisation, solid retail and commercial bank earnings despite net interest margin and conduct cost
pressures, as well as good levels of liquidity resulting in a BCA of baa2; (2) moderate loss-given-failure for its
senior unsecured creditors, resulting in no uplift to the senior unsecured debt rating; and (3) low probability of
government support, which does not result in any uplift to the senior ratings.
The affirmation of RBSG's BCA also takes into account environmental risk considerations. RBSG is exposed
to some high-carbon emission sectors, which are prone to environmental risks. In 2018 power and oil and gas
amounted to 1.2% of the group's lending exposures. However, RBSG's exposures are well-diversified
geographically and on a single name basis. The BCA also incorporates social risk considerations. The bank
has incurred substantial provisions related to the mis-selling of payment protection insurance (PPI). Moody's
expects PPI charges to gradually reduce to zero; nevertheless, as the bank continues to process the
information requests that it received until the 29 August 2019 deadline for UK consumers to claim
compensation, PPI-related charges could remain volatile until at least the end of 2020.

Moody's maintained a positive outlook on RBSG's long-term senior unsecured debt ratings. Moody's believes
that the group continues to make progress in restructuring, with this likely to be largely completed by the end of
2020.
-- NATIONAL WESTMINSTER BANK PLC
Moody's affirmed the BCA and all ratings and assessments of National Westminster Bank plc (NWB), The
Royal Bank of Scotland plc (RBS), and Ulster Bank Limited (UBL), reflecting (1) moderate asset risk, good and
stable profits from the retail and business banking activities, high capitalisation, high level of deposit funding
and good levels of liquidity, resulting in a BCA of baa1; (2) very low loss-given-failure for its depositors,
resulting in a two-notch uplift from the BCA; and (3) a further one-notch of uplift given moderate probability of
government support.
The affirmation of NWB's BCA also takes into account social risk considerations. The bank has incurred
substantial provisions related to the mis-selling of payment protection insurance (PPI). Moody's expects PPI
charges to gradually reduce to zero; nevertheless, as the bank continues to process the information requests
that it received until the 29 August 2019 deadline for UK consumers to claim compensation, PPI-related
charges could remain volatile until at least the end of 2020.
Moody's maintained a positive outlook on the NWB's, RBS's and UBL's long-term deposit and issuer ratings.
Moody's believes that the group continues to make progress in restructuring, with this likely to be largely
completed by the end of 2020.
SANTANDER UK PLC
Moody's affirmed the BCA and all ratings and assessments of Santander UK plc (Santander UK), non-ring-
fenced bank Santander Financial Services plc, and their holding company Santander UK Group Holdings plc
(Santander UK Group), reflecting (1) the group's low stock of problem loans, good risk-weighted capitalisation
and low earnings, but also a weak leverage ratio and profitability under pressure, resulting in a BCA of a3; (2)
very low loss-given-failure for depositors and senior bondholders of Santander UK, resulting in a two-notch
uplift from the BCA, and high loss-given-failure for the senior bondholders of the holding company Santander
UK Group, resulting in ratings one-notch below the BCA; and (3) moderate probability of government support
for Santander UK's depositors and senior debt, resulting in a further one-notch uplift.
Moody's changed the outlook on Santander UK's long-term deposit and senior unsecured debt ratings, and on
Santander UK Group's senior unsecured debt ratings to negative from positive, reflecting a weakening
operating environment in the UK. For Santander UK's long-term deposit and senior unsecured debt, the
outlook change also reflects a potentially more limited capacity of the UK government to support the bank in
case of need, as indicated by the negative outlook on the UK's sovereign debt rating.
SKIPTON BUILDING SOCIETY
Moody's affirmed the BCA and all ratings and assessments of Skipton Building Society (Skipton), reflecting (1)
a low stock of problem loans, strong capital and stable retail funding, but also margin pressure and structural
dependence on the UK housing market, resulting in a BCA of baa1; (2) moderate loss-given-failure for
depositors and senior bondholders; and (3) low probability of government support, which does not result in any
uplift.
Moody's changed the outlook on Skipton's long-term deposit and senior unsecured debt ratings to stable from
positive, because a weakening operating environment in the UK offsets the society's reduced asset risk.
YORKSHIRE BUILDING SOCIETY
Moody's affirmed the BCA and all ratings and assessments of Yorkshire Building Society (Yorkshire), reflecting
(1) strong asset quality, lower-than-peer mortgage lending growth rate and limited exposure to buy-to-let
lending, in addition to its solid capitalisation, resulting in a BCA of baa1; (2) low loss-given-failure for depositors
and senior bondholders, resulting in a one-notch uplift from the BCA, and high loss-given-failure for the junior
senior bondholders, resulting in ratings one-notch below the BCA; and (3) low probability of government
support, which does not result in any uplift.
Moody's changed the outlook on Yorkshire' long-term deposit and senior unsecured debt ratings to negative
from stable, reflecting a weakening operating environment in the UK, and the agency's expectations of
continued net interest margin pressure.

PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks published in August 2018. Please see the Rating
Methodologies page on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_205156 for the List of
Affected Credit Ratings. This list is an integral part of this Press Release and provides, for each of the credit
ratings covered, Moody's disclosures on the following items:
• Person Approving the Credit Rating
For ratings issued on a program, series, category/class of debt or security this announcement provides certain
regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series,
category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from
existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this
announcement provides certain regulatory disclosures in relation to the credit rating action on the support
provider and in relation to each particular credit rating action for securities that derive their credit ratings from
the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be
assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms
have not changed prior to the assignment of the definitive rating in a manner that would have affected the
rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on
www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this
credit rating action, and whose ratings may change as a result of this credit rating action, the associated
regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following
disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated
entity.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related
rating outlook or rating review.
The below contact information is provided for information purposes only. Please see the ratings tab of the
issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead rating
analyst and the Moody's legal entity that has issued the ratings.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal
entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures
for each credit rating.
Edoardo Calandro
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Nicholas Hill
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:

Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

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to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that
neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to
“retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an
opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or
any form of security that is available to retail investors.

Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary
of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned
subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of
MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit
ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an
entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment
under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services
Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.

MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and
municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as
applicable) have, prior to assignment of any rating, agreed to pay to MJKK or MSFJ (as applicable) for ratings
opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY250,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.