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Global banking sectors face significant risks in 2017, says S&P

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by November 24, 2016 General
The highest negative bias continues to be in Russia/CIS, primarily reflecting Russian stressed operating environment.

The highest negative bias continues to be in Russia/CIS, primarily reflecting Russian stressed operating environment.

KUALA LUMPUR: Protracted global economic recovery, heightened political uncertainty and low interest rates will continue to impact the global banking sector, says S&P Global Ratings.

The ratings agency said on Thursday the risks to the sector’s credit quality remain significant for 2017.

It also cited the still-evolving regulatory landscape as another key risk factor weighing on the operating environment for banks globally. 

“After an extended period of material balance sheet strengthening for most international banks, we believe that low economic growth, pressure on margins, and growing competition from nonbank players will keep pressure on the long-term sustainability of banks’ business models,” it said.

The comments were contained in its report, titled “The 2017 global credit outlook for banks: Risks remain significant amid sluggish growth, heightened political uncertainty, and low interest rates.”

“In our view, constraining factors for bank ratings in 2017 include weaker prospects for earnings growth globally, potential risks related to Brexit, and more generally increased political risks. 

“A snapshot of banking industry country risk assessment (BICRA) trends — which reflect our 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, while only two have positive trends  (Italy and Spain), and seven are stable (Mexico, Singapore, France, Korea, US, Netherlands, and Switzerland). 

“Out of the 85 banking systems where we publish BICRAs, 47% of banking systems have stable trends (on both economic and industry risk), 42% have negative trends (on one of the two factors), and 11% have positive trends (on one of the two factors),” it said.

S&P said since its last global credit outlook for banks published in July 2016, the proportion of banks with a negative outlook or on CreditWatch negative (with a “negative bias”) increased in Asia-Pacific and Latin America. 

Meanwhile, the percentage of bank ratings in the Middle East and Africa with a negative bias fell mostly  due to negative rating actions taken earlier in the year (e.g., downgrades of several Nigerian banks). 

It also said the proportion of banks with a negative bias in North America, Western Europe, and Russia/Commonwealth of Independent States (CIS) and Central and Eastern Europe were largely unchanged from July. 

“The highest negative bias continues to be in Russia/CIS, primarily reflecting Russian stressed operating environment,” it said.

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