Fitch: Global Credit Growth Prospects Remain Stable; Downside Risks for Emerging Markets

Fitch Ratings says in its latest Macro-Prudential Monitor that global credit growth is not likely to have a strong pick-up in 2015. Hence, macro-prudential risk indicators (MPI) could continue to trend lower with the highest risks still largely confined to emerging markets (EMs).

Fitch estimates that credit growth could increase mildly in 2015, to 4.6%. The Middle East and Africa (MEA) will continue to lead global credit growth with 8.1%. Asia and Latin America are forecast to recover some speed, while developed markets credit will moderate to 2.6% growth. EM Europe (EE) is on track to decelerate to 2.2%. Lower global growth, weaker commodity prices and tighter lending conditions are likely to weigh on EMs' credit growth.

Credit growth remained stable at 4.4% in 2014 reflecting the credit recovery in developed economies that was balanced by the slowdown in EMs. Credit growth in the developed world moved into positive territory for the first time since 2010 and jumped to 3% in 2014, the fastest since 2008.

The number of countries in which real private credit growth exceeded 15% in two successive years in 2012-2014 (the trigger MPI 2 or above for EMs) equals 22 or 27% of the EM countries. Slower credit growth and the passage of time mean that Angola, Ethiopia, Mongolia and Sri Lanka are no longer MPI 3. There are no new MPI 3 countries.

While certain countries have seen credit pick up in 2015 most do not presently show material real exchange rate appreciation and/or signs of asset price bubbles. Hence, no country at this point is likely to move to MPI 3 in 2016.

Three-quarters of all countries are now MPI 1, due to slowing EM credit growth and mild recovery in credit to GDP in developed countries (DC). Although DC credit to GDP has stabilized at around 132%, this is lower than the 138% in 2007, the eve of the global financial crisis (GFC). Despite growth deceleration, EM credit to GDP (44%) is forecast to continue increasing in 2015, albeit at a slower pace.

Bank Viability Rating changes have led to four Banking System Indicators (BSI) changes: Ireland improved to 'bb' from 'b' and Cyprus improved to 'ccc' from 'cc'; and El Salvador weakened to 'b' from 'bb' and Greece weakened to 'f' from 'b'.

This report updates the systemic risk indicators Fitch has published since 2005. It aims to identify the build-up of potential stress in banking systems due to a specific set of circumstances: rapid credit growth accompanied by bubbles in housing or equity markets, or appreciated real exchange rate (RER), the latter sometimes associated with asset market bubbles. The focus is therefore on only one potential source of banking system stress.

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