Britain’s biggest banks, including Lloyds and Barclays, face the risk of a credit rating downgrade if a compensation scheme is put in place for Auto Finance Mis-Selling Scandal.

Fitch, the influential credit rating agency, has warned that UK banks could come under pressure from a landmark Court of Appeal ruling that found bonuses to car dealers paid by banks were illegal.

He said the ruling, which surprised the industry, “materially increases” the likelihood of a compensation plan to compensate clientswhich could have “major financial implications” for British banks.

In a rating update, Fitch said lenders faced significant risks from the court ruling.

He added: “The profitability of UK banks has strengthened in recent years, supported by higher interest rates and contained impairment costs. However, further ratings could come under pressure if remediation costs impact earnings, capital ratios and business growth prospects for an extended period.”

Barclays, Lloyds and Santander were mentioned in Fitch’s warning, although it stressed that their ratings were “not immediately affected.”

All three currently have an “A” rating for credit quality and any downgrade would likely have only a small impact.

Specialist lenders Bank of Ireland, Investec Bank, Paragon and FirstRand were also included.

Fitch placed one of the largest lenders in the auto finance sector, Close Brothers, on “negative” rating watch on Friday due to the lender’s high exposure to auto finance.

Close is rated as having “good” credit quality, although it was removed from “high” credit quality earlier this year due to its exposure to auto financing.

Fitch cited Lloyds, Barclays and Santander as best positioned to weather the crisis due to their large profits and “relatively small exposure” to auto finance.