S&P affirms A/A-1 rating on Lloyds Bank

Standard & Poor’s has affirmed Lloyds Bank’s A/A-1 long and short-term counterparty credit ratings, despite retaining a negative outlook for the UK banking sector.

The ratings agency says the bank has strengthened its capitalisation, transformed its financial profile and describes the bank’s performance as “predictable” and “profitable”.

It says the sale of tranches of the bank’s shares in wealth management firm St James’s Place as well as several of its international operations has strengthened its capital. It has also raised capital from its insurance subsidiary and seen a faster-than-expected rundown of non-core assets.

Even allowing for the risk of further payment protection insurance charges in fourth quarter, S&P forecasts that Lloyds Bank will report a full-year statutory profit.

Lloyds Bank’s core subsidiary Bank of Scotland has also had its A/A-1 long and short-term ratings affirmed while bank holding company Lloyds Banking Group and intermediate holding company HBOS have both been affirmed at A-/A-2.

Despite the positive news for Lloyds Bank and its subsidiaries, Standard & Poor’s maintain its negative outlook for UK banking industry risk.

The ratings agency states the long-term counterparty credit A rating for Lloyds reflects its view that the bank has “high systemic importance in the UK”, owing largely to its material market share in UK retail deposits but an increase in higher-risk activities or conduct could increase earnings volatility, leading to a revision. In that event, S&P says it would be likely to lower the ratings on Lloyds by one notch.