Morningstar DBRS Changes Trend on Barclays Bank PLC to Positive From Stable; Confirms Its Issuer Rating at "A"

DBRS Ratings Limited (Morningstar DBRS) confirmed the credit ratings of Barclays Bank PLC (Barclays Bank or the Bank) and Barclays PLC (Barclays or the Group). This includes Barclays Bank's Long-Term Issuer Rating of "A" and the Group's Long-Term Issuer Rating of A (low). The trends on both the Issuer ratings have been revised to Positive from Stable. Barclays Bank's Intrinsic Assessment (IA), which reflects Morningstar DBRS' view of the credit strength of the Group, has also been maintained at "A" while the Support Assessment for Barclays remains SA3. Please see the full list of the credit rating actions at the end of this press release.

KEY CREDIT RATING CONSIDERATIONS
The change in trend to Positive reflects Morningstar DBRS' expectation that the progress Barclays has made to improve profitability will be sustained, reflecting solid revenue trends and strict cost discipline. Investments have been offset by efficiency efforts (including a reduction in headcount), which should support operating efficiency and overall profitability going forward. There is downside risk related to the U.S. trade policies, and potential subsequent negative impact on the macroeconomic environment. However, this should be mitigated by solid net interest income (in part thanks to structural hedges, but also higher interest rates compared to the prior decade), and strong capital markets revenues which will likely continue to benefit from volatility.

The confirmation of Barclays' credit ratings reflects Barclays' strong retail and wholesale banking franchise in the UK and well-established wholesale and consumer franchise in the U.S., its diversified earnings generation, its sound funding and liquidity position that benefits from a strong deposit base and regular access to the wholesale markets, as well as its solid capitalisation levels. The credit ratings also consider the Group's sound risk profile supported by low levels of nonperforming loans (NPLs), despite some small deterioration in the Corporate and Small and Medium-Size Enterprise (SME) businesses. Barclay's Investment Bank (IB) represents a high proportion of the Group's risk-weighted assets (RWAs) and revenues, which, in Morningstar DBRS' view, adds a degree of volatility to the Group's earnings and capital although Morningstar DBRS acknowledges the IB business is well diversified. Morningstar DBRS also notes operational risks have materialised in the form of serious IT system failures at the end of January 2025 affecting customers' access to payment transfers for three days but with limited financial impact and not affecting the franchise. Lastly, Morningstar DBRS also notes the UK Financial Conduct Authority (FCA) and the UK Court of Appeal are reviewing historical motor commission arrangements across several auto lenders, including Clydesdale Financial Services Limited.

Barclays' Long-Term Issuer Rating of A (low) is one notch below that of the Bank, in line with Morningstar DBRS' approach to rating bank holding companies.

The Group's IA of "A" is positioned below the three-notch Intrinsic Assessment Range (IAR), which is also supportive of the Positive trend.

CREDIT RATING DRIVERS
An upgrade of the Long-term Issuer Rating would occur if the Group continued to demonstrate profitability levels in line with similarly rated peers while continuing investments in targeted growth areas and internal controls. It would also require the Bank to maintain a sound risk profile and solid capital ratios.

Morningstar DBRS would change the trend back to Stable in case of a material deterioration in the risk profile or higher-than-expected remediation charges significantly affecting profitability. A downgrade of the Long-Term Issuer Rating would occur if there were a sustained deterioration in the Group's risk profile, negatively affecting capitalisation levels.

CREDIT RATING RATIONALE
Franchise Combined Building Block Assessment: Strong
With total assets of GBP 1.6 trillion at the end of March 2025, Barclays is one of the UK's leading banks with a strong retail and wholesale franchise in the UK and meaningful franchise in corporate banking and the cards business in the U.S. The Group's franchise is well diversified by business and geography and the non-UK operations contributed about 48% to the Group's operating income in 2024.

Earnings Combined Building Block Assessment: Good/Moderate
Morningstar DBRS considers Barclays' earnings generation as solid, benefitting from the Group's widely diversified operations across different businesses and geographies. At the same time, the large proportion of the Group's revenues from the IB which Morningstar DBRS considers as well diversified, but that tend to be less predictable than other revenue sources.

Barclays' Profit Before Tax (PBT) increased by 19% year over year (YOY) to GBP 2.7 billion in Q1 2025 and by 24% YOY to GBP 8.1 billion in 2024. Net attributable income was up 20% YOY to GBP 1.87 billion in Q1 2025 from GBP 1.55 billion in Q1 2024, largely driven by solid revenues in the IB and UK retail (Barclays UK). Among key considerations, the Group's net interest income increased by 13% YOY in Q1 2025, above guidance, thanks to higher-than-expected deposits balances as well as strong structural hedge momentum. Morningstar DBRS continues to see a resilient mortgage market in the UK and lending growth as of the end of March 2025. In the IB, Barclays reported strong YOY growth in Q1 2025, like its U.S. peers, in Global Markets (both Equities and Fixed Income) as well as in Debt Capital Markets, Transaction banking, and Corporate lending. The IB benefitted from the heightened volatility in the markets that has boosted net trading income up 22% YOY. The return on tangible equity (ROTE) of the IB division subsequently increased to 16.2% in Q1 2025 compared with 12.0% in Q1 2024 and 14.4% in Q1 2023.

The Group maintains strict cost discipline thanks to gross efficiency savings while investing in selected businesses such as the Private Bank and Wealth Management businesses. In Q1 2025, Barclays' cost-income ratio improved to 56% from 62% in 2024 and 67% in 2023, although it is also driven by revenue growth. This is within the Group's cost-to-income target of high 50% by 2026.

Barclays' reported loan loss rate was 61 basis points (bps) in Q1 2025, up from 51 bps in Q1 2024, slightly above the Group's cost of risk through the cycle guidance of between 50 bps and 60 bps. The increase was mainly driven by the U.S. Consumer Bank business line because of a post model adjustment for high U.S. macroeconomic uncertainty.

Risk Combined Building Block Assessment: Strong/Good
Barclays' risk profile is well-diversified by geographies and businesses, and asset quality is sound with low levels of NPLs. The Group is targeting to reduce its IB risk-weighted assets (RWA) to 50% of total RWA by 2026, this compares to 56% of total RWA at end-Q1 2025.

Meanwhile, the loan book is mainly concentrated in the UK market (73% of total gross loans at YE2024) with the rest being largely concentrated on consumer and corporate loans in the U.S. The non-UK operations contributed 48% of the Group's operating income, including 33% in Americas at the end of 2024.

The Group's asset quality remains sound with very few signs of deterioration despite the higher interest rate environment. Total Stage 3 loans totalled GBP 7.4 billion at the end of Q1 2025, while the Stage 3 loan ratio remained stable at 2.1%. Wholesale Stage 3 loans deteriorated to GBP 2.9 billion at the end of Q1 2025 from GBP 2.6 billion at the end of Q1 2024, representing 2.2% of Group Stage 3 loans (up from 2.0% at the end of Q1 2024). Meanwhile, the Stage 3 loan ratio for cards and personal loans also remained broadly stable at 4.8% (compared with 4.9% at the end of Q1 2024), well below the 5.7% seen at YE2019. The Group's Stage 2 loans (loans where credit risk has significantly increased since initial recognition) decreased to GBP 36.8 billion, representing 10% of total gross loans at the end of Q1 2025 compared with 11% at the end of Q1 2024.

Funding and Liquidity Combined Building Block Assessment: Strong/Good
Barclays's funding is supported by a large domestic franchise and well-diversified wholesale funding by instrument, currency, maturity, and investor. Customer deposits totalled GBP 556.1 billion at the end of Q1 2025, up from GBP 528.8 billion at the end of Q1 2024, driven primarily by growth at Barclays UK Personal Banking and the IB. Around 47% of total deposits were Corporate and SMEs at the end of Q1 2024 with the rest related to retail customers. Around 42% of total deposits were insured at the end of 2024, largely associated with retail deposits. The Group's customer net loan-to-deposit ratio was 61% at the end of Q1 2025, according to Morningstar DBRS' calculations. The Group has a good liquidity position with a liquidity pool totalling GBP 336 billion at the end of Q1 2025. Moreover, the Group reported a sound average liquidity coverage ratio of 175% at the end of Q1 2025 and an average net stable funding ratio of 136%.

Capitalisation Combined Building Block Assessment: Strong/Good
Barclays has a solid capital position supported by its earnings generation and access to capital markets. Under the new strategic targets, the Group expects to maintain its CET1 ratio within a range of 13% to14% compared with the expected minimum regulatory requirement of 12.2%. At the end of Q1 2025, the CET1 ratio was 13.9%, up 30 bps from the end of 2024, largely thanks to retained earnings and lower RWAs following the sale of the German consumer portfolio compensating for share buyback and dividend accruals. At the end of Q1 2025, Barclays had total Minimum Requirement for Own Funds and Eligible Liabilities (MREL) instruments of GBP 127.2 billion, accounting for 30.7% of RWAs, which compares with a minimum MREL requirement of 30.1%.

Further details on the Scorecard Indicators and Building Block Assessments can be found at https://dbrs.morningstar.com/research/454028.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental or Governance factors that had a significant or relevant effect on the credit analysis.

The Social factor(s) had a relevant effect on the credit analysis.
Morningstar DBRS views the Product Governance sub-factor as relevant, but it does not affect the credit rating or trend assigned to Barclays. This factor is new and was not present in the prior credit rating disclosure. The UK Financial Conduct Authority (FCA) and the UK Court of Appeal are reviewing historical motor commission arrangements across several auto lenders, including Clydesdale Financial Services Limited. Morningstar DBRS acknowledges the outcome remains highly subject to variation at this point; however, Barclays indicated "the ultimate financial impact could differ materially to the amount provided" and this is therefore reflected in the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (13 August 2024) at https://dbrs.morningstar.com/research/437781.

Notes:
All figures are in British pound sterling unless otherwise noted.

The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (4 June 2024) https://dbrs.morningstar.com/research/433881. In addition Morningstar DBRS uses the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (13 August 2024) https://dbrs.morningstar.com/research/437781 in its consideration of ESG factors.

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

The sources of information used for these credit ratings include Morningstar Inc. and company documents. Other sources include Barclays PLC Annual Report 2024, Barclays PLC FY 2024 & 1Q25 Results Presentation, Barclays PLC FY 2024 & 1Q25 Fixed Income Presentation, Barclays PLC FY 2024 & 1Q25 Results Announcements, Barclays PLC FY 2024 ESG Investor Presentation & Barclays PLC FY 2024 Pillar 3 Report. Morningstar DBRS considers the information available to it for the purposes of providing these credit ratings to be of satisfactory quality.

With respect to FCA and ESMA regulations in the UK and European Union, respectively, these are unsolicited credit ratings. These credit ratings were not initiated at the request of the issuer.

With Rated Entity or Related Third Party Participation: YES
With Access to Internal Documents: NO
With Access to Management: NO

Morningstar DBRS does not audit the information it receives in connection with the credit rating process, and it does not and cannot independently verify that information in every instance.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS's trends and credit ratings are under regular surveillance.

For further information on Morningstar DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://registers.esma.europa.eu/cerep-publication. For further information on Morningstar DBRS historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

The sensitivity analysis of the relevant key credit rating assumptions can be found at: https://dbrs.morningstar.com/research/454029.

These credit ratings are endorsed by DBRS Ratings GmbH for use in the European Union.

Lead Analyst: Vitaline Yeterian, Senior Vice President, Sector Lead
Rating Committee Chair: Marcos Alvarez, Managing Director
Initial Rating Date: 20 August 1999
Last Rating Date: 21 May 2024

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