Moody's could downgrade UK banks after PPI scandal

Credit ratings may plunge after financial review

by Luke Whitmore, 24th May 2011

The ratings agency Moody's has threatened to downgrade the credit ratings of fourteen UK banks in the wake of the PPI scandal.

The billions of pounds which the banks have set aside to pay compensation to those who were mis-sold PPI (Payment Protection Insurance) may have had some influence on the statement from Moody's, in which financial institutions were warned that their senior debt and deposit ratings were to be placed under review and reconsidered over the next three months.

Lloyds and RBS, two of the lenders hardest hit by the PPI mis-selling scandal, are among those who will be having their ratings reviewed. Barclays and HSBC, however, have escaped reassessment.

The government's decision not to offer support to banks should they find themselves in financial difficulties, meaning an end to taxpayer bailouts, has also been noted to have had a strong impact on the decision.

Elisabeth Rudman, a senior credit officer and bank analyst at Moody's, said "The reassessment is not driven by either a deterioration in the financial strength of the banking system or that of the government. It has been initiated in response to ongoing guidance from the UK authorities that banks that fail in the future should not expect capital injections from the public purse."

If credit ratings are downgraded, this is likely to lead to an increase in borrowing costs for the banks in question, which may spell bad news for consumers with loans already hitting record highs.

The banks have been hit with a double-whammy of lost revenue after the PPI mis-selling court case went against them, firstly by no longer being able to shore up their profits through sales of the insurance and secondly through being obligated to set aside a compensation fund for those who had already had it mis-sold to them.

If you have been affected by mis-sold PPI, we could help you claim a PPI refund today.

Claims Financial