Updated at 1.00pm

MOODY’S INVESTORS Services has downgraded 12 UK banks after reassessing the institutions’ “support environment” in the UK.

The ratings cuts include a one-notch drop for Lloyds TSB Bank, Santander UK and Co-Operative Bank and a two-notch downgrade for RBS and Nationwide Building Society.

Moody’s confirmed the rating of a 13th financial institution, Clydesdale Bank, as A2 with a negative outlook.

The ratings agency says the downgrades are based on the assumption that the UK government is less likely to provide future support to the banks and building societies:

This follows ongoing guidance from the UK Tripartite authorities (the Bank of England, the Financial Services Authority and the Treasury) that the government is more likely in the future to make greater use of its resolution tools to allow burden sharing with senior bondholders.

Moody’s said that the “downgrades have been caused by Moody’s reassessment of the support environment in the UK which has resulted in the removal of systemic support for seven smaller institutions and the reduction of systemic support by one to three notches for five larger, more systemically important financial institutions”.

The agency said that the downgrades “do not reflect a deterioration in the financial strength of the banking system of that of the government.

British Chancellor of the Exchequer George Osborne responded to the downgrade by saying that British banks are sound and that the downgrades reflect the government’s drive to move away from guaranteeing the big banks.

Speaking to BBC Radio 4, Osborne said: “People ask me, how are you going to avoid Britain and the British taxpayer bailing out banks in the future? This government is taking steps to do that. Therefore credit rating agencies and others will say, well actually these banks have got to show they can pay their way in the world.”

Portugal

Meanwhile, Moody’s today downgraded nine Portuguese banks by one or two notches and said that all of the bank’s ratings carry a negative outlook, except for Banko Portugues de Negocios (BPN) which has a developing outlook.

The main factor behind the Portuguese downgrades is Moody’s “assessment of the deterioration of their unsupported financial strength”, including the level of national debt being held by the banks.

The bank’s domestic asset quality is expected to deteriorate further due to “a weak outlook for economic growth in the context of the government’s austerity measures”, according to Moody’s, and the banks’ liquidity is under pressure.