Fitch Ratings has affirmed Coventry Building Society’s long-term issuer default rating (IDR) at ‘A+’ with a stable outlook and its viability rating (VR) at ‘a-’.
In addition, Fitch has assigned the Co-operative Bank – now owned by the Coventry – a long-term IDR of ‘A+’ with a stable outlook and a VR of ‘a-’.
Fitch said is has assigned a group VR to Coventry and the Bank “because we believe both entities” credit profiles cannot be disentangled, and their failure risk is substantially the same. Their ratings will, therefore, move in tandem.”
The ratings reflect the merged entities’ “stable, but undiversified, business model, prudent underwriting standards, healthy asset quality, and a sound funding and liquidity profile”, added Fitch.
It said the acquisition of the Co-op Bank in January 2025 had broadened Coventry’s product offering by adding current accounts and unsecured retail and SME loans to its product mix. However, it notes, the combined group remains highly concentrated on the UK housing market.
Fitch said the group ratings reflect the Co-op Bank’s “high and rapidly progressing operational and financial integration” with Coventry.
Related: Coventry Building Society completes takeover of the Co-op Bank
“We expect the integration to be completed in 2027 as part of the banking business transfer scheme under Part VII of the Financial Services and Markets Act 2000,” it added..
The long-term IDRs are two notches above the group VR, said Fitch, “due to the very large group resolution debt buffer”, which provides senior creditors with additional protection in case of failure.
This would be downgraded following a group VR downgrade or a sharp decline in the resolution buffer, added Fitch, warning that the group VR would come under pressure if integration risks materialised and weighed on strategic execution and financial performance, “in particular if integration costs were higher or merger synergies lower than expected, or due to severe operational challenges”.
Acquisition effects, rapid asset growth and weaker-than-expected profitability could be negative for the ratings, the agency said
And the VR would come under pressure if the group’s risk appetite rose sharply, increasing the four-year average impaired loans ratio persistently above 2%, and if operating profitability deteriorated structurally and became insufficient to sustain the business plan.
Conversely, the long-term IDRs would be upgraded following a group VR upgrade, which would require a smooth completion of the Co-op Bank’s integration, “followed by a major strengthening of the group’s business profile underscored by a record of sharply increasing revenue, business diversification and pricing power, as well as sustained healthy financial metrics”.
Fitch added that the government support ratings of “no support” reflect its view that senior creditors cannot rely on extraordinary support from the UK authorities if the group becomes non-viable”.
The UK bank resolution regime requires senior creditors participating in losses, if necessary, ahead of a bank receiving sovereign support, the agency noted.
