Moody's upgrades UK banking sector

Moody's has changed its outlook on the UK banking system to 'stable' from 'negative' to reflect Britain's improved economic prospects.The ratings agency said the more stable UK economy had improved the outlook for borrowers being able to repay debts. There were also encouraging signs for profitability while tougher capital and liquidity measures were making banks safer.Moody's said it expected bad debts for the system as a whole to fall and for UK banks to be able to absorb expected losses. Moody's said: "Although the UK continues to face the prospect of low medium-term economic growth, Moody's does not expect a deterioration in the operating environment. Moreover, unemployment has not increased as much as in previous recessions, thereby contributing to a stabilisation in banks' asset quality."UK economists have been upgrading their forecasts for growth after a run of positive survey data suggested Britain's economy was recovering from the financial crisis and its wider effects. Economic recovery will be good news for banks because business will expand and more borrowers will be able to repay.Banks' profitability will remain squeezed by low interest rates and regulatory charges, Moody's said in its report, Banking System Outlook: United Kingdom.