Moody’s has put the A2 rating of Leeds Building Society on review for downgrade as it assesses the covered bond issuer’s relative financial strength versus its key UK peers in light of a realignment of the sector by the rating agency.

Earlier this month Moody’s revised its opinion of six building societies and it said that its review of Leeds’ rating is part of the same process. Moody’s noted that Leeds’ bank financial strength rating of C+/A2 is the highest standalone rating in the UK building society sector.

“The differing financial performance of firms within the sector over the last couple of years as well as the latest interim statements offer an opportunity to compare the key drivers of Leeds’ balance sheet strength such as asset quality, capital, liquidity and profitability with those of its main counterparts in the sector over this time horizon,” said the rating agency. “During the review, Moody’s will assess whether these fundamental drivers taken alongside qualitative factors such as effectiveness of risk management, business strategy and other management actions, continue to justify a standalone rating for the society above those of its closest peers.”

Moody’s said that it would also look at whether Leeds’ business model and long term credit strength is compatible with the A2 rating.

“It will assess the challenging nature of the operating environment in which Leeds and its peers continue to operate with competition for stable retail deposits intensifying and the fragile economic environment creating significant uncertainties around asset quality – especially of non-standard loans – over the long term, given in particular the highly commoditised nature of building societies’ business models and their relative lack of asset diversification,” said the rating agency.

Leeds’ covered bonds – which were not referred to in Moody’s release – are rated Aaa. According to Moody’s latest quarter monitoring overview, at an issuer rating of A2 the covered bond programme had a TPI leeway of one notch, with a Timely Payment Indicator of “probable”.