The report, “The 2017 Global Credit Outlook for Banks: Risks Remain Significant amid Sluggish Growth, Heightened Political Uncertainty, and Low Interest Rates”, highlights protracted global economic recovery, heightened political uncertainty, low interest rates, and the still-evolving regulatory landscape as key risk factors weighing on the operating environment for banks globally.
After an extended period of material balance-sheet strengthening for most international banks, S&P believes that low economic growth, pressure on margins, and growing competition from non-bank players will keep pressure on the long-term sustainability of banks’ business models.
The constraining factors for bank ratings in 2017 include weaker prospects for earnings growth globally, potential risks related to British voters’ decision to leave the European Union, and more generally increased political risks.
A snapshot of banking industry country risk assessment (BICRA) trends – which reflect S&P’s view of at least a one-in-three probability that economic risk or industry risk of operating in a banking environment could change – suggests that 11 of the 20 largest global banking markets face negative pressure. Only two have positive trends (Italy and Spain), and seven are stable (Mexico, Singapore, France, South Korea, the United States, the Netherlands and Switzerland).
“Out of the 85 banking systems where we publish BICRAs, 47 per cent of banking systems have stable trends (on both economic and industry risk), 42 per cent have negative trends (on one of the two factors), and 11 per cent have positive trends (on one of the two factors),” the research said.
Since its last global credit outlook for banks published in July, the proportion of banks with a negative outlook or on CreditWatch negative (with a “negative bias”) increased in the Asia-Pacific region and Latin America.
Meanwhile, the percentage of bank ratings in the Middle East and Africa with a negative bias fell mostly because of negative rating actions taken earlier in the year (for example downgrades of several Nigerian banks).
The proportion of banks with a negative bias in North America, Western Europe, Russia/Commonwealth of Independent States, and Central and Eastern Europe were largely unchanged from July. The highest negative bias continues to be in Russia/CIS, primarily reflecting Russia’s stressed operating environment.