BICRA Analysis of The UK

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of the financial regulator in the past expansionary environment, although measures to strengthen the supervisory regime are under way.

Rationale

We have reviewed the banking sector of the United Kingdom (AAA/Stable/A-1+ unsolicited ratings) under our updated Banking Industry Country Risk Assessment (BICRA) methodology. We rank the U.K. in BICRA group '3' along with countries such as Chile, Denmark, Korea, New Zealand, and the U.S. We define the U.K.'s peers as Canada, Germany, Japan, and the U.S.

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Our criteria define the BICRA framework as one "designed to evaluate and compare global banking systems." A BICRA analysis for a country covers rated and unrated financial institutions that take deposits, extend credit, or engage in both activities. The analysis covers the entire financial system of a country while considering the relationship of the banking industry to the financial system as a whole. A BICRA is scored on a scale from 1 to 10, ranging from ...

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This reflects the stress that the government's continuing fiscal discipline is exerting on unemployment and household sector incomes, as well as the persistent interest spread compression arising from holding base rates at all-time lows.

Our "intermediate risk" assessment of credit risk in the U.K. economy reflects high household and corporate debt, which combined is currently around 200% of GDP. The main loan concentration outside residential mortgages (60% of the domestic loan book) is commercial real estate (12%)--a higher-risk sector that is still subject to downside risk in our view. Nevertheless, we note that underwriting standards across loan portfolios have improved since ...

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