UK banks face jump in funding costs as Moody's prepares downgrades British banks, including Barclays, HSBC and Royal Bank of Scotland, are this month expected to have their ratings cut by as much as two notches as part of a worldwide review by Moody's of bank credits. The review comes as Moody's takes a markedly more pessimistic view on the creditworthiness of large financial institutions in the wake of the crisis. The agency has already downgraded major banks in several European countries, including Spain and Italy, adding to the funding difficulties some of the lenders are experiencing. British banks are thought to be relatively well placed to avoid the worst consequences of the downgrades having already reduced the size of their balance sheets. Research by The City UK shows that the combined exposure of UK lenders to risky debt in Greece, Portugal, Spain, Italy and Ireland fell by 13pc last year to £195bn. This compares with French bank holdings of a combined £350bn and German banks with £270bn. French and German lenders are also expected to be downgraded by Moody's. "These figures highlight the successful measures UK banks have taken to improve stability," said Chris Cummings, chief executive of The City UK. Sir Philip Hampton, chairman of RBS, said last week that the bank had disposed of its Greek government debt holdings.