Credit risk for UK corporates and financials has been on the rise since last June's Brexit vote - while European credit quality improves

 
Rebecca Smith
Since the Brexit vote, credit risk among UK corporates and financials has been on the rise
Since the Brexit vote, credit risk among UK corporates and financials has been on the rise (Source: Getty)

Credit risk for UK corporates and financials has been on the rise over the year since the Brexit vote, according to the latest figures from Credit Benchmark.

Since Britain voted to leave the European Union on June 23 last year, using credit data amassed from global IRB banks, Credit Benchmark has found subsequent changes in the credit risk of British corporates and financials, compared to their continental Europe peers.

Read more: Barnier: Don't use Brexit to slash taxes and red tape

The difference suggests that the impact of the Brexit vote "has been more negative for the UK than the rest of the developed Europe," said Barbora Makova, senior research analyst at Credit Benchmark.

The average probability of default of 423 UK corporates has increased from 74 basis points to 81, while small and medium-sized firms have suffered the greatest decline in credit quality. The consumer goods and basic materials sectors recorded the greatest deterioration in credit quality.

The UK financial sector reflected a "similar trend", with the average probability of default edging up from 41 Bps to 44 Bps, though large financials have recorded a marginal improvement in credit quality.

It's a different picture across Europe. For European corporates, credit risk has been stable, and the average probability of default has dropped from 63 Bps to 61 Bps in May 2017, and consumer goods and basic materials firms have seen a "clear improvement" in credit quality. Meanwhile, the average probability of default for European financials has dropped from 92 Bps to 82 Bps.

Overall, the average probability of default rose most for oil and gas (from 188 Bps to 237 Bps), consumer goods (from 55 Bps to 61 Bps), basic minerals (from 66 Bps to 74 Bps), and industrials (from 61 Bps to 67 Bps).

Credit Benchmark said the deterioration in the oil and gas industry was a worldwide trend, but while industrials show a negative trend in both the UK and Europe, it was more pronounced in the UK. And while consumer goods and basic materials posted an improvement in credit quality, they had both significantly deteriorated in the UK.

Read more: Oil sector poised for renewed M&A as barriers to decommissioning removed

Related articles