Market Overview

KBRA Releases Research Report, "UK Challenger Banks: An Overlooked Growth Story"


Kroll Bond Rating Agency (KBRA) releases a new report titled, "UK
Challenger Banks: An Overlooked Growth Story". The report focuses on
financial position of the UK challenger banks, which are growing market
share in the UK's relatively concentrated banking sector.

KBRA believes that the credit profiles of the larger and more
established challenger banks, typically with sizeable portfolios of
prime residential mortgages, are comfortably investment grade,
reflecting their fundamentally sound financial profiles, but constrained
by far lower diversification when compared to larger institutions. These
banks typically have healthy asset quality, solid capitalisation,
adequate funding and liquidity, and low but improving profitability.

Less established and smaller challenger banks typically have sound
financial profiles, with adequate profitability and healthy asset
quality, reflecting the favorable economic backdrop over the past
decade. KBRA views their funding and liquidity profiles as adequate, but
weaker than at larger challengers, due to the lack of diversification
and more price sensitive customer base. Overall capitalisation is
satisfactory, but KBRA believes some of the smaller challenger banks may
have sub-optimal capitalisation for their risk profiles.

Challenges include lack of product diversification, need to further
streamline or maintain cost structures, increasing regulatory burden,
and higher funding costs. The banks are vulnerable to a potential
negative economic impact from Brexit, which could be more severe for
those banks with substantial exposures to niche and/or unsecured lending
markets. In light of these challenges, KBRA believes that there will be
an increased consolidation in the market.

To access the full report, click here.


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About KBRA and KBRA Europe

KBRA is a full service credit rating agency registered with the U.S.
Securities and Exchange Commission as an NRSRO. In addition, KBRA is
recognized by the National Association of Insurance Commissioners as a
Credit Rating Provider and a certified Credit Rating Agency (CRA) by the
European Securities and Markets Authority (ESMA). Kroll Bond Rating
Agency Europe Limited is registered with ESMA as a CRA.

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