SAT, 21 NOV, 2020-theGBJournal– Fitch Ratings says in a special report Friday that a high 50% of emerging market (EM) bank ratings are currently on Negative Outlook, highlighting the risk of downgrades in 2021.
The Negative Outlooks predominantly reflect potential deterioration in banks’ financial metrics as a result of the economic downturn driven by the pandemic. However, they are also in part driven by risks to the credit profiles of some EM sovereigns and bank owners.
Risks to EM banks’ financial metrics and ratings relate primarily to asset quality. Impaired loans will rise in most markets in 2021 as payment holidays for borrowers expire and forbearance measures are rolled back, requiring greater provisioning expenses. In addition, we see significant downside risks to Fitch’s base-case economic forecasts, with protracted downturns or more sluggish recoveries than currently expected having the potential to compound existing asset-quality problems. Revenues in some markets will also weaken due to margin compression, lower growth and reduced fees.
EM bank rating downgrades have been moderate so far in 2020, and concentrated in markets that have been hit particularly hard economically or have experienced sovereign downgrades.
Ratings have been downgraded mainly in Latin America (notably Colombia and Mexico) and the Middle East and Africa (Oman, Bahrain, Nigeria and South Africa), while downgrades in emerging markets in Europe and Asia have been more limited.
A combination of capital buffers, available sovereign/shareholder support and expected economic recoveries in our base-case forecasts have limited the downside for EM bank ratings to date.- Fitch Ratings