Outlook for UK banks 'brighter' than at any point since financial crisis

The global credit ratings agency said that the banking sector financial reports that it examined "generally contained more positive developments than negative". However, it warned that the credit profiles of the larger banks in particular could still be affected by the need to make provisions to cover the cost of future lawsuits, regulatory misconduct penalties and restructuring.

Financial regulation expert Michael Ruck of Pinsent Masons, the law firm behind Out-Law.com, said that the report showed that the outlook was still mixed for banks.

"Whilst the Standard & Poor's report is clearly a positive sign for banks and the UK's wider economy, the increasingly large financial penalties being imposed by UK and overseas regulators will continue to impact growth and profitability for years to come; based upon the various ongoing investigations which are within the public arena and the rhetoric currently coming from regulators," he said.

The agency based its report on the financial results of the top 20 UK banks and building societies by revenue, published in the first half of 2015. Only the largest banks are given a formal credit rating by the agency. Standard & Poor's said that it was not expecting to up-rate any of the banks in the near term, but that its findings were "consistent with our current rating levels, including our mostly stable rating outlooks".

"Selected banks may achieve a positive rating outlook in the coming quarters if they continue to build capital, which these financial results suggest is possible, combined with the 'positive trend' we have ascribed to economic risk for UK bank ratings since early July," it said.

In general, banks had shown higher net interest income, very low credit losses and better regulatory capital ratios over the first six months of 2015, Standard & Poor's said. They were also able to demonstrate "sound" funding and liquidity metrics and more business opportunities, it said.

Net interest income means that a bank has earned more interest than it has paid out.

In a separate report on bank capital levels, Standard & Poor's said that UK banks had made "steady improvements" in the level of capital held relative to their level of risk, and would continue to do so "over the next 18-24 months". These improvements were down to both banks' improving ability to generate their own capital, and by tougher capital requirements set by the regulator, it said.

"In light of these developments, we expect UK banks to improve their capital position somewhat faster than peers in some Western and Southern European countries," Standard & Poor's said.

"We consider that an improved operating environment for UK banks has resulted in very low levels of domestic loan losses, and we expect that low impairment charges this year and next will support banks' ability to build capital," it said.