Following on from the theme of protection and business we take a look (also because we were interested!) at bank credit ratings.
So getting to the facts, what are the main banks ratings?
What do they mean?
Bank Credit Ratings are generally scored based and give an indication of how secure the bank is (how likely is the bank is to go out of business). These ratings tend to be given out by advisory or investor services, in this case Bloomberg, who have used ratings supplied to them by Fitch. Fitch are a global credit ratings provider. The higher the credit rating, the lower the chances of them going bankrupt, with the ratings going in letter order (A+ being better than B+ and so on). There are no banks in the UK with a credit rating of AAA or higher. Ratings of A mean that there is a low risk involved and that the bank is of high quality. B means that the bank is of reasonable quality, however there could be a fairly substantial risk involved.
The new kids on the block – the online banks (eg. Starling, Tide) – have been rapidly growing in the business banking market in the last few years. So it is important to consider their credit worthiness. At present these are not readily available, however we aim to compile the list in our next blog post.
Why is this important?
Using a bank with a high credit rating is very important in order to keep your funds protected in the case of a bank going insolvent. If a bank has a high rating then it doesn’t mean it is impossible to go bankrupt, but the global credit rating companies don’t believe there is a very high chance of it happening. If a bank was to go insolvent and there was a real lack of protection then this could mean that the funds of customers would be lost.
Can banks go bust?
It is a possibility for a bank to go bust, however the chances are much lower for a bank with a higher credit score. The majority of banks are insured by the FSCS (Financial Services Compensation Scheme) for personal and business banking, which means that generally all deposit accounts up to £85,000 are insured, and therefore the credit rating of the bank does not need to be a concern to the customer. Provided this insurance is held by the bank, then this amount of money in the customers’ accounts will be protected if the bank does go bust. FSCS aims to take just 7 days to compensate any customers after the bank has gone bust. However this may take longer if it is a more complex case.
What to do next?
If this an area that is of interest to you, we suggest that you firstly contact your bank to understand their licence with the FSCS, regulation by the FCA and generally their credit rating.
Additionally if there is anything further you wish to discuss regarding ways of protecting your business from financial risks – then please do not hesitate to get in touch with us by using the contact form below.
Information correct as of 12 May 2021 and not extensive. For all detailed information we suggest you review the website as mentioned above.