(The following statement was released by the rating agency)
Link to Fitch Ratings' Report: Global Bank Rating Trends 4Q15
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=877108
LONDON, January 29 (Fitch) Seventy percent of actions on bank ratings in 4Q15
were downgrades, two-thirds in emerging markets (EMs), says Fitch Ratings.
Trends in developed markets (DMs) are more positive, with upgrades exceeding
downgrades. We expect EM/DM trends to continue to diverge as the impact of
rising US rates and the prolonged slump in commodity prices add to stresses in
several EMs, including Negative sovereign Outlooks on Russia, Brazil and some
Gulf Cooperation Council countries.
Our latest Global Quarterly Bank Rating Trends report, available by clicking on
the link above, highlights the relative stability of DM bank ratings. We believe
this shows that years of restructuring and working out of legacy assets are
beginning to pay off. This was reflected in the upgrades of three US regional
banks, the two Irish lenders and one UK bank in 4Q15. Progress has been slow but
over 80% of DM bank rating Outlooks are now Stable. However, rating trends in
DMs are not all one way. We downgraded Deutsche Bank (DE:DBKGn) and Standard Chartered (L:STAN) due
to challenges in a changing global banking market.
One-third of the quarter's 40 rating changes were downgrades of Brazilian banks,
triggered by the two-notch downgrade of Brazil's sovereign rating to 'BB+'. The
Outlook for this rating is Negative and we expect further asset-quality
deterioration in this market, affected by the challenging operating environment
and currency weakening, which puts pressure on the cost of servicing debt for
unhedged foreign-currency borrowers.
The EM weakness is not limited to the banking sector. Our latest Credit Outlook
report - see link below - says that rating Outlooks are worsening across most
core sectors in many EMs, particularly energy and commodities, retail and
banking. Historical data show a correlation between a strengthening US dollar
and weakening EM sovereign creditworthiness as falling US dollar incomes can
affect credit fundamentals.
The effect of US rate rises on EM banks is uncertain but potentially negative.
Inflation in the value of foreign-currency loans as local currencies fall puts
pressure on capital ratios, while banks with short-term US dollar needs may face
higher borrowing costs and are vulnerable to reduced market access.
Rating drivers also diverge across DM and EM banks. Ninety percent of DM banks'
Long-Term Issuer Default Ratings are driven by standalone strength or pure
parental support, while in EMs this proportion is just over two-thirds. State
support expectations are far more important for EM bank ratings than for DM bank
ratings, and we do not believe this will reduce significantly in EMs in the
foreseeable future.
href="https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=87
6846">Click here to view "The Credit Outlook - January 2016". /a
Contact:
Jens Hallen
Senior Director
Banks
+44 20 3530 1326
Fitch Ratings Limited
30 North Colonnade
London E14 5GN
Bridget Gandy
Managing Director
Financial Institutions
+44 20 3530 1095
Janine Dow
Senior Director
Fitch Wire
+44 20 3530 1464
Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153, Email:
elaine.bailey@fitchratings.com.
The above article originally appeared as a post on the Fitch Wire credit market
commentary page. The original article can be accessed at www.fitchratings.com.
All opinions expressed are those of Fitch Ratings.
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