PARIS
The number of negative outlooks and watches on global financial institutions’ (FIs) ratings continued to decline in 3Q21, signalling that pressure from the pandemic is receding, Fitch Ratings said in a new report.
The proportion of bank ratings on negative outlook or watch net of ratings on positive outlook or watch declined to about 30% from about 40% at end-2Q21. Nevertheless, the banking sector’s recovery is slower than that for non-bank financial institutions (NBFIs) and insurance, which ended the quarter with net negative proportions of about 15% and 1%, respectively, said Fitch Ratings in its report titled ‘Global Financial Institutions Ratings Tracker – 3Q21’.
Of the 327 rating actions taken on global FIs in 3Q21, about a fifth were Outlook revisions to Stable from Negative. About 60% of actions led to unchanged ratings and Outlooks.
Insurance ratings had the highest proportion of positive actions, mostly driven by improving financial performance or M&A. For banks, positive rating actions were largely due to a combination of improved earnings and asset quality metrics helped by stabilising operating environments, or by positive actions on parent or sovereign ratings. For NBFIs, positive actions were limited and mostly due to reduced leverage, higher profitability or M&A.
About a quarter of rating actions for FIs in Latin America were negative, mostly due to Columbia’s downgrade, while several bank rating Outlooks in the Philippines were revised to Negative following a similar rating action on the sovereign, said Fitch Ratings.
Downgrade risks for global FIs are still concentrated in Latin America, along with some banking sectors in the Middle East and Africa, which could face pressure as monetary policy normalises and fiscal support wanes.
“We believe peak fiscal stimulus has passed, with the monetary policy debate increasingly focused on inflationary pressures,” said Fitch.
