FINANCIALS: BoE FSR Preview: Similar Outlook, CCyB A Point Of Interest

Bank of England Financial Stability Report due out this morning (1030 London time). Language likely little changed from Dec-23, aside from proximity of next rate cut. CCyB news will be a point of interest. UK bank spreads have performed well YTD and financial results have generally appeared robust with few asset quality pitfalls incurred.

• FSRs are semi-annual – the last (6-Dec-23) saw “challenging” conditions with “increased geopolitical tensions” and growth, inflation and rate uncertainties. It did specifically allude to rates remaining “higher for longer” but noted the health of the banking system and, again, flagged risks in non-bank finance. We could almost copy-and-paste that language into current expectations but at least we are now somewhat closer to UK rate cuts (13bp priced into Aug-24 cut currently).
• Specifically for banks, the countercyclical capital buffer (CCyB) was maintained at its neutral (2%) setting. The recent news on this has been more mixed with Spain looked to increase the buffer (against bank lobbying), whereas Czechia has just (6-Jun) decided to lower its buffer. So, this will be a key area of interest.
• Bank results have generally been positive and, notwithstanding France, most bank asset prices are better now than at the start of the year. UK bank EUR spreads are 42bp tighter YTD (€IG banks -36bp) and equity is up 16% YTD (SX7P +16%).