The ratings agency believes that a shortfall in funding, competition from banks and difficulty in borrowing money on the wholesale markets will make it very hard for some building societies to survive.
It said banks will face a funding challenge of £319bn in five years when the Government’s Special Liquidity Scheme and the Credit Guarantee Scheme expire in 2012 and 2014.
The agency added that it was highly uncertain as to whether the residential mortgage-backed securities market will be able to plug the gap.
When these schemes expire, the banks – some of which are now Government-owned with guarantees for savers – will be forced to continue competing vigorously with building societies for savers’ money, to continue financing their own lending activities.
The continued scarcity of wholesale funds and the perceived safety of Government-owned banks will lead to increased competition for savers’ cash, with building societies as the main victims.
A funding gap will result in tighter credit conditions for borrowers and restrictions on lending, which will lead to a slower housing market.
Marjan Riggi, senior credit officer at Moodys, predicted that many societies will find it increasingly difficult to survive without access to cheaper Government-backed funding.
He added: “We believe that as the UK Government gradually disentangles itself from the extraordinary support of the banking system many of the smaller lenders will have to either consolidate with stronger entities or be at the risk of break-up or distressed exchanges.”
Adrian Coles, director general of the Building Societies Association (BSA), said he still expected societies to post strong results for 2009.
He added: “We would not rule out further consolidation in our sector but a number of our members rely on organic growth and capital, and are in a strong position to sit out the current economic downturn, while still safeguarding their members’ interests.”
