Rating agency confident on societies' credit outlook

(First Edition)

IBCA, the international rating agency, is generally positive on the credit outlook for building societies, in stark contrast to its rival, Moody's, which several weeks ago warned that societies' ratings were entering 'uncharted waters', writes John Willcock.

IBCA believes 'bad debt problems are receding, and most building societies are performing strongly . . . Halifax Building Society was upgraded to AA+ in 1993 and is thus IBCA's highest rated UK financial institution, along with NatWest . . . More upgrades could follow.'

The more bearish Moody's report said that diversification by societies had increased their risk profile, and that mortgage lending was becoming more risky. Societies were also losing market share to banks, it said.

David Barker of Hoare Govett, who helps to raise capital for societies, commented: 'Moody's bearish view of the building society movement probably reflects conditions a year or two ago. Hoare Govett's view is that the building society sector has turned the corner.'

Several City critics of Moody's have suggested that it tends to view UK building societies as being similar to American Savings & Loans institutions. These suffered disastrous losses in the 1980s.

Mr Barker said that UK societies had been able to raise more than pounds 2.5bn on the international capital markets during the trough of the recession in 1992-93. 'This is hardly a sign of weakness,' he said.