Barclays, HSBC, Lloyds among 12 banks at risk of downgrade by Moody’s following Brexit

'We expect lower economic growth and heightened uncertainty over the UK's future trade relationship with the EU'

Barclays share price fell by 10.3%and RBS fell 15% on Monday morning (PA)

The credit rating agency Moody’s has changed its outlook on 12 UK-based banks and building societies as the finance industry continues to feel the fallout of the vote to leave the European Union.

Moody's changed its outlook on eight of the 12 banks, including Barclays, HSBC, Santander UK and Nationwide, from stable to negative. Its view of Lloyds Bank and the Principality Building Society were changed from positive to stable.Moody's has also revised the outlook on Bradford & Bingley and NRAM to negative from stable.

“We expect lower economic growth and heightened uncertainty over the UK's future trade relationship with the EU to lead to reduced demand for credit, higher credit losses and more volatile wholesale funding conditions for UK financial institutions,” said Laurie Mayers, an associate managing director at Moody’s.

“This will be negative for banks' credit fundamentals, as reflected in today's rating actions. Simultaneously, we have changed the outlook on the UK banking system to negative from stable,” she added.

Moody’s also cut its outlook on Britain’s insurers.

Aviva, Standard Life, Prudential and Legal & General group, the biggest insurance companies in the UK in term of total assets, were among those affected.

“There’s a high degree of uncertainty and that’s a natural response from the rating agencies,” Nigel Wilson, chief executive at Legal & General, told BBC Radio 5 Live.

“It doesn't mean there can't be a high degree of success. The firm's appetite for investment across the UK is undiminished,” he added.

Downgrades are important because they can make it more expensive for banks or companies to borrow money, because lenders can be less sure of their ability to pay the money back.

When a credit ratings agency changes its outlook, it means that bank or company may be more at risk of a downgrade in the future.

The news follows Moody’s decision to lower its outlook for the UK Governmment’s bond rating from stable to negative in light of Britain’s decision to leave the EU.

On Friday, the agency warned Britain's economic growth will be weaker, its economic policymaking may be diminished and the government's fiscal strength reduced.

Across the insurance sector, shares fell heavily last Friday with Aviva, Legal & General and Standard Life all falling by more than 15 per cent.

Shares in UK biggest banks were also hit by massive losses as markets were at their most vulnerable after the British public voted for the UK to leave the EU.

Trading in Barclays and RBS shares was suspended on Monday morning following heavy losses on the London Stock Exchange.

Barclays share price fell by 10.3 per cent and RBS fell 15 per cent on Monday morning, triggering automatic circuit breakers that kick in when a share price falls more than 8 per cent.

Lloyds was down 10.26 per cent at 51.15p, after falling more than 20 per cent on Monday.

Fitch has downgraded the UK’s credit rating to AA negative, on Tuesday after similar move by S&P.