State-owned banks to flourish if ECB takes steps to ease crisis

Tim Wallace
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BRITISH banks have recovered strongly from the financial crisis, building up their balance sheets and improving credit quality, analysts at Liberum Capital believe.

And if the Eurozone crisis starts to ease, banks like RBS and Lloyds should be well on track to rebuild capital and earnings levels, the researchers forecast yesterday.

Pointing to European Central Bank hints at further action to reduce peripheral governments’ borrowing costs and so cut the chance of a messy break-up of the currency area, Liberum upgraded its ratings for RBS and Lloyds.

“ECB quantitative easing seems likely to ‘kick the can’ for a couple more years which critically allows the UK banks to boost their capital levels and reduce their GIIPS [Greek, Italian, Irish, Portuguese and Spanish] exposure,” said the research note.

“Since June 2011, the UK domestic banks’ GIIPS exposure has decreased by 21 per cent. Extrapolating this decline implies RBS and Lloyds’ exposure of £38bn and £13bn by the end of 2014 while capital levels will have similarly improved, enhancing the banks’ resilience to later GIIPS exits.”