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Moody's revises outlook on European banks to negative

Moody's changed the outlook on European banks to negative from stable, saying it expects lenders' loan quality and profitability to deteriorate on the back of weakening economic prospects in much of the region.

The U.K. and German banking systems drive the overall negative outlook as they account for the largest share of banking assets in the region, the rating agency noted.

Weaker economic growth will likely weigh on business opportunities in the euro area, Moody's said, adding that it expects a bigger deterioration to take place should trade tensions escalate either between the U.S. and China or the U.S. and the EU.

Moody's said uncertainty related to Brexit will weaken operating conditions in the U.K. and slow loan demand, while low interest rates and intense competition will likely weigh on profitability. Earlier in December, the agency changed the outlook on the U.K. banking system to negative.

Meanwhile, Moody's said the outlook for banks in the Nordics, central and eastern Europe and the Commonwealth of Independent States remains stable, as the operating environment in the region will continue to be supportive.