UK banks still have relatively low capital ratios compared to their European, North American and Asian peers, says Alliance Trust.

While the slowing UK economy, driven by a weaker housing market, has been a key factor in banks’ recent poor performance, not all banks have been affected to the same extent.

Alliance Trust suggests that global players, such as HSBC, have been able to avoid the full impact of the credit crunch so far through their exposure to the Asian markets.

However, this shelter may not last as Asian economies are reliant on the US as an export market and a prolonged slowdown of the US economy, coupled with rising inflation in Asian countries, may begin to affect UK banks with Asian interests.

In this environment, exposure to commercial property will remain another area of concern for UK banks as some have been aggressive in increasing their property exposure over the last few years.

Tim Gibbens, global financials analyst at Alliance Trust, says, ‘The credit crunch has hit the UK banking sector very hard and, after some difficult months, valuations are starting to look better, but we are not out of the woods yet.

Despite banks raising more than £20 billion of capital over the last year, we cannot rule out further moves to shore up balance sheets.

‘Not all banks have been affected by the global credit crunch in the same way. Among the UK banks, those with less exposure to the US and UK housing markets and greater exposure to Asia have fared relatively well.

‘The key areas to monitor now are the strength of banks’ capital and liquidity positions, as well as their exposure to commercial property and specialist mortgage markets where prices may weaken further.’