Global Bank Ratings Are Skewing Negative

The outlook on bank ratings has become more negative. Fitch Ratings’ bank ratings report published today shows that bank negative rating outlooks rose sharply this year. The global share of its bank Negative Outlooks rose to 17% at the end of the first half of 2019, from 13% at end-2018.  The share of Positive Outlooks was 6%, slightly down over the same period.  Investors and regulators need to watch these signals, especially as we are so close to the end of the credit cycle, and as geopolitical and trade tensions abound.

The Rating Watch Negative on banks from the UK, which were put in place in March, is the cause of much of the deterioration in Outlooks/Watches. According to Fitch Ratings, the Rating Watch Negative “reflects heightened uncertainty over the outcome of the Brexit process and the increased risk that a disruptive 'no-deal' Brexit could lead to negative rating action, most likely with Negative Outlooks being assigned.”

Latin American banks have the highest share of bank ratings on Negative Outlook (37%); this is mostly mirroring the Negative Outlooks on several Latin American sovereigns. More than 80% of bank downgrades were in emerging markets, particularly in Latin America. The Latin American deteriorating local operating environments is putting pressure on banks and reduces the scope for Latin American banks to receive support, if needed, from state authorities or foreign bank parents. “The Negative Outlooks on Turkish banks also contributed significantly to the global negative ratings picture.”