Fitch affirms Coventry Building Society ratings, assigns A+ to Co-operative Bank

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Fitch affirms Coventry, Co-op Bank ratings

Highlights

Fitch affirms Coventry Building Society's and The Co-operative Bank's Long-Term IDRs at 'A+' with Stable Outlooks, reflecting prudent underwriting and 19.7% CET1 ratio at end-2025.
Fitch expects integration of The Co-operative Bank to complete by 2027, with group ratings underpinned by a 19.8% resolution debt buffer but notes high UK housing market concentration.
Downward rating pressure could emerge if the CET1 ratio drops materially below 20% or the resolution debt buffer falls below 15% of risk-weighted assets during integration.

Integration progress and rating rationale

As reported by Fitch Ratings, the agency affirms Coventry Building Society's Long-Term Issuer Default Rating at 'A+' with a Stable Outlook and its Viability Rating at 'a-'. Fitch also assigns The Co-operative Bank, the group's wholly owned subsidiary, a Long-Term IDR of 'A+' with a Stable Outlook and a VR of 'a-'.

Fitch says it assigns a group viability rating to both entities because their credit profiles cannot be disentangled and their failure risk is substantially the same. That means the ratings of Coventry Building Society and The Co-operative Bank are expected to move in tandem.

The agency says the ratings reflect a stable but undiversified business model, prudent underwriting, healthy asset quality and a sound funding and liquidity profile. It adds that the acquisition and integration of The Co-operative Bank since January 2025 broaden the group's product offering through current accounts and unsecured retail and SME lending, although the combined group remains highly concentrated on the UK housing market.

Fitch expects the integration to be completed in 2027 through a banking business transfer scheme under Part VII of the Financial Services and Markets Act 2000. It also says the long-term ratings sit two notches above the group VR because of a large resolution debt buffer, measured at 19.8% of risk-weighted assets at end-2025, alongside a common equity Tier 1 ratio of 19.7%.

Capital thresholds and UK banking implications

Fitch says downward pressure on the ratings could emerge if integration risks hurt execution or financial performance, particularly if costs rise above expectations, merger synergies disappoint or operational problems become severe. Weaker profitability, rapid asset growth or acquisition effects would also be negative if they push the CET1 ratio materially below 20% and the UK leverage ratio below 4.5% without credible plans for a swift recovery.

The group viability rating could also come under pressure if risk appetite rises sharply and the four-year average impaired loans ratio stays above 2%, or if operating profitability weakens structurally and no longer supports the business plan. Fitch adds that the Long-Term IDRs would also face downgrade pressure if the resolution debt buffer falls below 15% of risk-weighted assets and the CET1 ratio drops below 17.5%, or if the buffer declines below 13% of risk-weighted assets.

On the upside, Fitch says an upgrade would require a higher group VR, supported by a smooth completion of the Co-operative Bank integration and a major strengthening of the group's business profile. That would need to be backed by sharply rising revenue, greater business diversification, stronger pricing power and sustained financial metrics, including a leverage ratio moving comfortably above 5%.

Our earlier coverage of Fitch’s outlook revision on the Eurosail UK 07-3 BL PLC and Eurosail UK 07-4 BL PLC RMBS notes explained that the agency shifted the notes’ Outlooks to Stable from Negative while affirming ratings after a portfolio and credit-enhancement review. It highlighted that improving UK economic conditions and firmer house prices were supporting mortgage collateral and easing arrears trends, even as some pressures such as cumulative defaults and senior fees remained watchpoints for future rating actions.

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