The troubles of UK banks are far from over, Moody’s warned yesterday, as the rating agency forecast further losses of £130bn in the next few years as bad debts rise and pressure builds on profitability.

Moody’s said the UK banking sector had already absorbed losses on loans of about £110bn by the end of 2008 and it raised or arranged about £120bn of new capital by mid-2009.

However, the rating agency said UK banks and building societies could suffer further losses of about £130bn from their loan books from the start of 2009 based on its estimates of the future performance of key asset classes.

These losses could reach £250bn in a stressed-case scenario if the UK’s economic performance was worse than expected. Moody’s numbers include its estimate of the benefit of the government’s asset protection scheme, which ring-fences toxic assets.

Financial Times