Manageable Impact From Debt Unrealised Losses for Large UK Banks; Robust Funding and Liquidity Positions

DBRS Morningstar released a commentary on the potential impact of unrealised losses for large UK banks.

Key highlights include:

• UK banks have securities portfolios at amortised cost that represent a lower proportion of assets than for European Banks and SVB.

• Under an extreme theoretical scenario that the large UK banks are required to sell their amortised cost bond portfolios, we view the negative impact on the banks’ CET1 would be modest and fully manageable, even when we assume a 10% haircut to the value of the amortised cost portfolio.

• We consider UK Banks to have strong funding and liquidity positions, largely underpinned by their solid customer deposits base and solid access to the capital markets for funding.

“The potential impact of realising the unrealised losses from their securities portfolios at amortised portfolios is very manageable for UK banks, particularly considering the banks’ strong internal capital generation, which is benefitting from the asset repricing at higher interest rates,” notes Maria Rivas, Senior Vice President, Global Financial Institutions at DBRS Morningstar.