UK bank system no longer ranks among safest

Standard and Poor's reiterated its view on Thursday that the United Kingdom is no longer among the most stable and low-risk banking sysems globally, adding colour to a banking industry risk assessment revealed last year.

The rating agency placed the UK's banking system in group 3 out of its 10 Banking Industry Country Risk Assessment (BICRA) categories on Dec 21 2009, alongside the banking system of the USA.

"The publication of this report is just providing more colour on what went into that decision making process," said Nigel Greenwood, analyst at Standard and Poor's.

While British banks are at the same rank as those from Portugal, Chile and Austria, the banking systems of Canada, France and Germany banks are ranked higher.

S&P said in its statement that the action was due to the Britain's weak economic environment, the reputational damage wrought upon the banking industry, and high dependence on state-support programs of a significant proportion of the industry.

The agency also said that the deleveraging process of households, government and companies would weigh on the economy and therefore the banks' financial performance.

British shares and sterling fell after the release of the report, with the FTSE 100 index <.FTSE> down 0.96 percent at 1624 GMT, and the pound trading almost a cent lower at $1.6143 from $1.6236 previously. Gilt futures also slipped. The report from S&P came just two days after the agency downgraded four Irish banks [ID:nLDE60P2E6] following a similar process. Irish banks are in BICRA group 4.