Location: New York
Author: Gerry Rawcliffe
Date: Wednesday, October 28, 2009
Fitch Ratings said the number of bank downgrades declined globally to 41 in Q309 from 94 in Q209. Overall, the number of bank rating actions taken by Fitch dropped to 90 from 183 during the same period, following particularly high levels of rating actions from Q408.
The majority of rating actions (68) continued to be negative. There were 22 positive actions (Q2: 13), meaning the proportion of positive actions increased to 24% in Q309 from 7% in Q209. Most of Fitch's bank ratings globally continue to have Stable Outlooks (65%) at end-Q309. However, in the case of certain major banks that have been subject to state aid, this is a function of government support rather than Fitch's view of fundamental performance.
Fitch continues to be concerned about the impact of changes in real economies on banks, despite improved performance in financial markets. Fitch's bank ratings already incorporate an expectation of further stress in commercial property, particularly in speculative/development, and residential construction sectors. The question of timing of defaults in the current recession is complex, due to the prolonged trough, with some elements arguing for an earlier peak and others for a later peak.
"Rising company defaults and unemployment rates in many markets are likely to cause loan impairment charges to worsen further, and this is factored into Fitch's bank ratings," says Gerry Rawcliffe, Managing Director in Fitch's Financial Institutions rating group. "Historically, data indicates that defaults will peak some two quarters after economic contraction formally ends."
The number of Negative Outlooks in developed markets increased to 111 at end-Q309, from 104 at end-Q209. This was mainly as a result of additional Negative Outlooks in developed Europe, reflecting Fitch's view that the operating environment for banks is likely to remain difficult well into 2010. However, the number of Negative Outlooks globally remained almost unchanged (at 231 versus 230), or 28% of banks.
Emerging Europe has been the emerging market region worst impacted by the financial crisis. A large proportion of the 120 Negative Outlooks in emerging markets related to emerging Europe (88) at end-Q309. Overall, 30.3% of bank ratings in emerging markets were assigned a Negative Outlook.
The quarterly report, entitled "Global Bank Rating Trends Q309" is available at www.fitchratings.com.
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