Sustained recovery 'far from certain' for British banks: S&P

26th August 2010, Comments 0 comments

The British banking sector's chances of a sustained recovery are "far from certain", despite news of healthy first-half profits, ratings agency Standard & Poor's said in a report on Thursday.

"A sustained improvement in the performance of the major UK banks remains far from certain, despite recent interim results which represented a significant milestone in the industry's recovery," S&P said in the report.

"Standard & Poor's is cautious as to whether the banks' improved performances represent the early stages of a sustained trend toward growing, recurring earnings, and capital accretion," it added.

The agency cited a number of reasons for the cloudy outlook which hangs over the troubled sector.

"First, prospects for the UK economy, while improved, remain far from clear," it said.

"Second, several UK banks remain overly reliant on wholesale funding that is government-guaranteed or central bank-funded, and still face significant refinancing requirements over the next couple of years.

"Finally, a major policy review, the Independent Commission on Banking, has uncertain, but potentially important, implications for banking industry risk."

Earlier this year, the British government set up the Independent Commission on Banking to study whether big banks should be broken up, and their investment and retail arms separated. The commission will produce its final report by the end of September 2011.

© 2010 AFP

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