Banks Global
EM Banking System Datawatch Economic Risks Ease; Moderate Pressure on Bank Credit Profiles Remains Special Report Economic Risks Ease: Fitch Ratings expects economic growth in emerging markets (EMs) to recover moderately to 4.1% in 2016 and accelerate to 4.9% in 2017 after a low of 3.8% in 2015. Near-term downside risks for EMs have eased in recent months as a result of the stabilisation of growth in China, the commodity price recovery and a weaker dollar. We expect continued strong economic performance in India, and for Russia and Brazil to exit recession in 2017. Moderate Negative Rating Pressure: EM banks’ credit profiles remain under moderate pressure, notwithstanding the easing of downside risks, due to slower-than-historical GDP growth, maturing loan books, lower commodity prices, weaker currencies and greater political risks. These factors, combined with Negative Outlooks on sovereign ratings, drive Negative Outlooks on most banks in Russia, Brazil and Saudi Arabia; 25% of EM banks were on Negative Outlook at end-1Q16, up from 22% at end-2015 mainly due to actions in EMEA. Related Research Foreign Currency Debt: Rising Risks to Emerging Market Sovereigns (April 2016) Macro-Prudential Risk Monitor (May 2016) Global Economic Outlook (May 2016) Asia-Pacific Banks Regulatory Compendium (April 2016) China Bank Compendium Report (March 2016) India Financial Institutions Compendium (March 2016) Dollarisation in CIS/Georgian Banking Sectors (June 2016) Russian Banks Datawatch 1Q16 (May 2016) Russian Banking Sector: Surviving the Crisis (April 2016) Turkish Banks’ External Debt: End-2015 Update – Foreign Borrowing Slows; Structural Vulnerabilities Remain (June 2016) Financial Institutions 2016 Outlooks Compendium
Buffers, Support Largely Intact: Fitch still expects negative rating actions to be moderate in scope. This reflects banks’ significant loss-absorption capacity, still positive economic growth in most EMs and available sovereign support. Discussions on senior creditor bail-in are gaining traction in some EMs (most notably Russia), but Fitch expects support, in particular for stateowned banks, to remain in place across most EMs for the foreseeable future. Russia Stabilising: Russian banks continue to recognise problem loans and capital at some is tight, but downside risks have fallen as the economy starts to bottom out. Liquidity remains comfortable, margins are slowly recovering and regulatory forbearance is being rolled back. Turkish banks’ performance remains sound, supported by solid economic growth, although NPLs will likely continue to tick up as portfolios season. Banks’ foreign borrowing has slowed as a narrower current account deficit has reduced Turkey’s financing requirements. Pressures, Support in China: Slower economic growth in China is adding to pressure on banks’ asset quality. NPL ratios, although rising, remain low due to regulatory forbearance and various support measures, while credit/GDP continues to creep up to unsustainable levels. Elsewhere in EM Asia, the mostly negative Sector Outlooks for 2016 reflect expected pressures from slower growth in China, lower commodity prices and weaker currencies. But banks’ profitability and capital buffers should in most cases help to offset these effects.
Analysts James Watson, CFA (Emerging Europe) +7 495 956 6657 james.watson@fitchratings.com Mark Young (APAC) +65 6796 7229 mark.young@fitchratings.com Alejandro Garcia (Latin America) +52 81 8399 9100 alejandro.garcia@fitchratings.com Eric Dupont (Middle East and Africa) +33 1 4429 9131 eric.dupont@fitchratings.com
Research Konstantin Alekseenko +7 495 956 9901 konstantin.alekseenko@fitchratings.com
www.fitchratings.com
Indian Banks’ Capital Needs: Regulatory driven efforts to deal with legacy asset-quality issues are driving up reported NPLs and credit costs, adding to pressures on capital. In particular, public-sector lenders will find it challenging to generate internally, or raise from the market, the capital they need to ensure full Basel III implementation by 2019. Brazil Weakening; LatAm Stable: Credit costs are rapidly trending upward in Brazil, with state-owned and smaller private-sector banks particularly badly hit and some already posting operating losses. Elsewhere in Latin America, Fitch expects the mild economic slowdown to moderately affect asset-quality and profitability metrics, but slower loan growth should support capital adequacy and funding profiles. Slower Growth in GCC: In Gulf Cooperation Council (GCC) countries, lending growth has weakened since 2015 due to reduced government spending and tighter liquidity has resulted in higher funding costs, which banks have started to pass on to borrowers. Most ratings remain driven by potential sovereign support and some have been downgraded as sovereigns’ ability to provide support has diminished with lower oil revenues.
17 June 2016