Banks face refinancing challenges

BANKS in the UK face a major challenge in refinancing over £300bn of government funding in the next two to three years, the Fitch credit ratings agency said in a report yesterday.

Fitch said 2010 might see positive earnings signs within the major UK banks’ domestic retail and commercial banking divisions, but warned any recovery is likely to be gradual, fragile and could prove short-lived if the economy takes another turn for the worse.

Fitch’s report – “UK major banks: reasons to be cheerful or false dawn?” – said the major UK banks had taken advantage of the stronger market appetite to issue non-guaranteed debt during 2009 and 2010.

But it added: “The refinancing requirements in the next two to three years are a key challenge and mean that pressure on liability margins will remain high.”

The Bank of England’s special liquidity scheme and the Treasury’s credit guarantee scheme, set up during the credit crisis to help the banks fund themselves, expire by 2013.

But James Longsdon, managing director in Fitch’s financial institutions group, said it “wouldn’t be in anyone’s interest to stick rigidly to timetables”.