UK Banks’ 2019 Results Hit by Charges; 2020 Outlook Affected by COVID19 and Brexit

DBRS Morningstar has published a commentary discussing 2019 results of the major UK banking groups and the 2020 outlook.

Key Highlights include:

• The UK banks’ aggregate statutory profits weakened in 2019, driven by goodwill impairment and PPI charges.
• Despite some normalisation in the cost of risk, banks' underlying financial performance was resilient.
• In 2020 profits are likely to remain under pressure from the restructuring and low rates.
• The outbreak of the coronavirus represents a significant risk to the 2020 outlook.

“In 2020, profitability is likely to remain under pressure from low interest rates and intense competition in the domestic mortgage lending. Some of the large banks have also indicated they will be posting large restructuring charges. The recent outbreak of the coronavirus could have adverse implications for the global economy and the core markets, in which UK banks operate, exerting pressure on banking revenues. If new monetary policy measures are taken that lead to a further decline in interest rates, the pressure on net interest margins could intensify. These risk factors could lead to pressure on UK banks’ profitability and a deterioration in their asset quality metrics in 2020” said Tomasz Walkowicz, Vice President.