GlobalCapital: Default risks accumulate in Brexit-plagued UK market

UK corporate debt is at an all-time high as the risks posed by a traumatic departure from the EU in October peak. Default risk among UK industrials has deteriorated sharply in recent years while at the same time their EU counterparts have lowered their risk profile. Karoliina Liimatainen reports.

The average default risk of UK industrial companies has risen about 24% since January 2016, according to Credit Benchmark index data, while the risk for their EU peers, has declined by about 9%.

The Credit Benchmark data is based on a cross-section of data provided by major banks and includes “low thousands” of UK companies and “high hundreds” of EU firms, explained David Carruthers, the head of research at the data company.

While Brexit is a major factor, the decoupling of the credit risk for the UK and the rest of the EU has not solely been down to the divorce, Carruthers said.

“In Europe, many companies have been quite concentrated on paying down their debts,” he said. “European balance sheets have been improving in recent years but in the UK, if anything, the corporate debt has increased.”

GlobalCapital, August 15, 2019.

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Credit Benchmark brings together internal credit risk views from over 40 leading global financial institutions. The contributions are anonymized, aggregated, and published in the form of consensus ratings and aggregate analytics to provide an independent, real-world perspective of credit risk. Risk and investment professionals at banks, insurance companies, asset managers and other financial firms use the data for insights into the unrated, monitoring and alerting within their portfolios, benchmarking, assessing and analyzing trends, and fulfilling regulatory requirements and capital.