LONDON (Reuters) - Banks could face higher credit losses if a vote by Britain to leave the European Union triggers an exodus of foreign-born residents, according to research published by Moody's on Thursday.
The ratings agency said banks would likely face "more durable but moderate challenges" if Britons opted out of the EU in a referendum on June 23, with losses on buy-to-let mortgages one of the most likely sources of financial pain.
"In the event of a Brexit, the demand for housing in London could weaken given a large foreign-born population that might be sensitive to an exit," Moody's said.
"This would have a negative effect on rents and reduce the overall level of interest coverage of buy-to-let mortgages ... potentially resulting in modestly higher credit losses over the cycle, although this impact is unlikely to be dramatic."
Moody's also said a Brexit could put pressure on the operational structures of some British and international banks which do cross-border business between Britain and the rest of Europe.
Many global investment banks run the bulk of their European operations out of London, relying on the EU's "passporting" regime that allows them to offer their services across the bloc out of their legal entities based in Britain.
Moody's said these banks would likely face costs from relocating key staff, creating new legal entities and "re-engineering" their operating models to ensure they still had access to the EU in the event of a Brexit.
The agency also said a phase of low credit growth would "likely be extended and exacerbated" if Britain leaves the EU, resulting in a "moderate" hit to some UK commercial bank profits.