Moody's: Large UK banks more resilient to weakening commercial real estate sector

In its latest review of the UK economic outlook, the US ratings agency, Moody’s Investor Service, expects the commercial real estate (CRE) sector in the United Kingdom (UK) to weaken over the coming quarters in wake of the Brexit vote.

Key Quotes:

"We estimate that the six largest UK banks have reduced their aggregate gross UK Commercial Real Estate lending exposure by around 40%, to GBP84.6 billion at end-June 2016 from GBP138.9 billion at the end of 2010"

"Reduced exposures to UK CRE coupled with stronger capital buffers means that large UK banks should be better positioned to handle a deterioration in the sector than during the 2008/09 global financial crisis"

"Pressures on the UK CRE market mounted in early 2016 amid uncertainty about the outcome of the Brexit referendum"

"And following the acutal vote to leave the EU, we have seen the collapse of some large CRE deals, as well as the suspension of redemptions at some UK property funds -- these events signal a sharp change in investor sentitment"

“But though banks may be better placed to deal with a CRE slump than they were a number of years ago, a severe stress would certainly erode capital, and materially in some cases, according to the rating agency. As noted earlier in August”