Fitch: Headwinds Reduce for EM Banks, But Pressures Remain

Fitch Ratings says in its latest EM Banking System Datawatch that pressure on emerging market (EM) bank ratings has reduced, with the proportion on Negative Outlook falling to 20% at end-1Q17 from a peak of 33% at end-3Q16.

In part, this reflects improved near-term economic prospects for EMs. Fitch forecasts economic growth in emerging markets to increase to 4.7% in 2017 and 4.8% in 2018 from 4.0% in 2015 and 4.2% in 2016 as Russia and Brazil return to positive growth, commodity prices have stabilised and Chinese growth has surprised on the upside.

However, in most cases EM banks whose Outlooks have reverted to Stable have done so after rating downgrades, both of banks and sovereigns, in such markets as Turkey, Saudi Arabia, South Africa, Costa Rica and Oman. Furthermore, the proportion of EMEA banks on Negative Outlook, which are concentrated in EMEA and Latin America (LatAm) remains significant; these include major lenders in the large LatAm markets of Brazil, Chile, Colombia and Mexico.

 

EM banks' credit profiles remain under pressure, to varying degrees, due to weaker than historical growth, commodity prices and currencies. Dollar strength and signs of a shift in China's policy stance could also weigh on emerging markets, and economic growth is likely to remain subdued in Brazil, Mexico and Turkey.

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