At the same time, the ’A-/A-2’ long- and short-term counterparty credit ratings on the society were affirmed.
It says it has reappraised Yorkshire’s progress in integrating the Chelsea Building Society against its expectations, as well as its future prospects.
Giles Edwards, credit analyst at S&P, says: “We consider that Yorkshire has made good progress in recent months, and expect the recovery in Yorkshire’s earnings and capitalization to continue over the coming year, even if the currently difficult macroeconomic environment and wholesale market conditions persist.”
Yorkshire is the UK’s second-largest building society, a position that was bolstered by its acquisition on April 1, 2010 of fifth-largest Chelsea.
S&P says it expected that Yorkshire’s financial profile would weaken as a result of the acquisition, notably that it would likely face challenges in achieving sufficient earnings to restore capitalization to Yorkshire’s historic strong level.
In its interim accounts for the six months to June 30, 2010, Yorkshire reported the integration of Chelsea to be progressing well, and that it expected to realize its targeted cost savings in full by end-2011.
S&P understands that Yorkshire has successfully managed down and repriced the majority of the uneconomic one-year retail deposits balances that Chelsea brought with it.
S&P says the ratings on Yorkshire continue to reflect its sound liquidity and funding position, but also take into account Yorkshire’s limited business diversification and moderate market position in the context of the UK banking sector.
It considers Yorkshire to be of moderate systemic importance to the UK banking system, but factor no governmental support into the ratings.
Edwards, says: “While we expect that the macroeconomic environment and wholesale funding market conditions will remain difficult, we expect that Yorkshire’s earnings will continue to recover over the coming year, further bolstering capitalization, and that its funding and liquidity profiles will remain supportive rating factors.
“We consider a positive rating action to be unlikely in the medium term, given what we see as Yorkshire’s limited diversity, low absolute earnings, and the difficult U.K. economic environment. A negative rating action could be triggered if earnings come under renewed pressure, which would most likely arise from a material increase in the loan impairment charge, or if capitalization and funding were to weaken materially.”