Global rating's agency, Moody's have said in a new report that it is upgrading its outlook on the UK banking system to "stable" from "negative" as the institutions strengthen their financial health.

The agency hinted that the its outlook for the British banking sector changed due to a general change in the stable economic outlook for the UK economy. The agency noted that the bad debts on commercial property loans as well as funding and liquidity for institutions have shown improvements in the UK resulting in the strengthening of the institutions in the sector.

The British government has been directing the banks to increase their cash reserves to be able to sustain another financial crisis and strengthen their financial positions. Estimates have shown that the aggregate capital at the country's five largest banks by 2012 was £27.1 billion. Experts said that the banks are now largely sufficiently well-capitalised in the UK but needs to be done to improve th health of eth entire banking sector.

Johannes Felix Wassenberg, Moody's managing director for banking, said, "Overall, we believe that UK banks are sufficiently well-capitalised to absorb expected losses from both our central and adverse stress scenarios. Once the large UK banks execute their capital plans to address the additional capital buffer requirements recently imposed by the Prudential Regulation Authority, Moody's believes UK banks will be well capitalised for the risks they face and will compare favourably to their European peers."