Mortgage lenders in the UK still face tough challenges due to economic uncertainty, as well as tougher capital requirements that will continue to weigh on vulnerable companies, while stronger players are taking advantage by making more acquisitions, said Moody’s Investor Service.
Higher funding costs attributed to intense competition for deposits and the gradual withdrawal of government’s aid is a major pressure that many banks are suffering to obtain higher profits at a time when lending market growth is flat and when they need additional capital to meet regulatory requirements, said Moody’s.
The investor advisory service cited several banks, including the Nationwide Building Society, Co-Operative Bank PLC and Banco Santander S.A. as most likely to benefit from the continuing storm faced by small lenders, and even take advantage of it by acquiring its weaker counterparts.
"These are the mortgage lenders with more diverse product offerings, a wider and more diversified funding base and/or greater economies of scale – they have also been the earliest and most active consolidators in the industry," said Moody’s.
Moody’s added that some smaller lenders like West Bromwich and Newcastle will face further consolidation or deleveraging unless they recover profitability in the medium term.