Fitch cut Skipton Building Society from BBB to BBB- yesterday (Wednesday) and changed the outlook from negative to stable following a periodic review of UK building societies, noting that Skipton is in its view more exposed to operational risk than its peers.

As part of the same review Fitch affirmed five UK building societies’ ratings: Coventry (A), Leeds (A-), Yorkshire (BBB+), Principality (BBB+), and Newcastle (BB+).

The rating agency said that Skipton’s ratings reflect a continued low, albeit slightly improving, profitability of its mortgage and savings business, which is overshadowed by a much larger and profitable estate agency franchise.

The net interest margin of the building society’s loans is rising, but remains low, particularly on a risk adjusted basis, according to Fitch.

The rating agency said that Skipton has two subsidiaries – Amber Homeloans Limited and North Yorkshire Mortgages Limited – operating in higher risk areas, but that its exposure to commercial real estate (CRE) is limited when taken as a proportion of Fitch Core Capital, and granular.

“Fitch views that the society is more exposed to operational risk than its peers because of the various businesses it operates,” said the rating agency.

It said that although the outlook on Skipton’s ratings is stable, they could be downgraded further if the performance of the building society’s subsidiaries becomes a significant drag on the group or if there is deterioration in asset quality or the liquidity position of the group.

“The ratings could be upgraded, however,” it added, “if the balance of risk profile, business generation and profitability between its mortgage and savings business and its estate agency becomes more balanced.”