Fitch Ratings: Global Bank Rating Outlooks More Negative than in Mid-2018

The number of bank ratings on Negative Outlook has increased since the middle of last year, Fitch Ratings says. The share of Negative Outlooks globally rose to 13% at end-2018 from 10% at end-1H18, following sovereign-driven Outlook revisions in Italy and Latin America, while the share of Positive Outlooks decreased slightly to 7% (end-1H18: 8%). Emerging Markets Americas had the highest proportion of Negative Outlooks at end-2018 (29%), with banks in Argentina and Mexico accounting for half of these. Our revision of Italy’s Outlook to Negative in August led to Negative Outlooks on the ratings of five Italian banks rated in line with or above the sovereign. A reduction in the sovereign rating would most likely lead to downgrades of these banks, and other Italian bank ratings could also come under pressure if refinancing conditions become more difficult or if banks’ asset quality weakens significantly. We changed 70 bank Issuer Default Ratings (IDRs) in 2H18, up from 47 in 1H18. Downgrades (42) doubled relative to 1H18 and significantly outpaced upgrades (28), mainly as a result of widespread Turkish bank downgrades. The Turkish bank downgrades reflected a more challenging operating environment and the resulting increased risks to banks’ financial profiles. They also reflected our reassessment of the risk of a marked deterioration in Turkey’s external finances. This could reduce the authorities’ ability to provide support in foreign currency (for state-supported banks) or increase the risk of restrictions that would prevent banks from servicing their obligations (for foreign-owned banks). The Outlooks on almost all Turkish banks’ IDRs remain Negative.

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