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BIS warns on bank credit rating downgrades

In its latest quarterly review of developments in international banking and financial markets, the Bank for International Settlements (BIS) warns that more downgrades in banks’ credit ratings can be expected.

According to the BIS, the role of credit rating agencies has come under increased scrutiny since the global financial crisis highlighted risks that had been underestimated.

As a result, one agency has recently proposed changes to its bank rating methodology, while another has recalibrated rating factors.

In summary, the BIS report states: “A close look at data on bank credit ratings and agency publications leads to three key findings.

“First, all three major rating agencies (Fitch Ratings, Moody’s Investors Service and Standard & Poor’s) consider the creditworthiness of large European and US banks to have worsened materially since the onset of the crisis.

“Second, rating agencies are currently in greater agreement about banks’ creditworthiness than in mid-2007, reflecting shifts in estimates of government support.

“Third, ongoing revisions to agencies’ methodologies and assessments of the financial landscape seem likely to lead to further downgrades in the banking sector.”

Last month, Moody’s announced that it is reviewing the credit ratings of 14 UK financial institutions for possible downgrades regarding long-term and, in some cases, short-term debt/and or deposit ratings.

The list includes Lloyds TSB, Nationwide Building Society, Royal Bank of Scotland and Santander UK, with the results of the review expected in August.

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