FI outlooks continue stabilising in 1Q22 amid negative actions
Outlooks on financial institutions’ (FI) ratings continued to stabilise in 1Q22 despite negative actions outweighing positive actions by some distance, Fitch Ratings says in a new report.
The stabilisation reflected improved operating environments and stabilised or enhanced financial metrics, while downgrades were driven by related sovereign rating actions in emerging markets.
The proportion of ratings on Negative Outlook or Watch net of ratings on Positive Outlook or Watch continued to decline towards pre-crisis levels, decreasing to 10% at end-1Q22 from 13% at end-2021 (end-2019: 6%).
Banks had the largest improvement in net Negative Outlooks and Watches (-5pp), helped by several Outlook stabilisations linked to sovereign Outlook revisions in Costa Rica, Oman and Panama.
Read: Africa faces infrastructure financing gap of $108bn annually – Adesina
Of the 269 rating actions taken on global FIs in 1Q22, 52% led to unchanged ratings and Outlooks, 27% were negative actions (mostly downgrades) and about 20% were positive actions including Outlook revisions to Stable from Negative.
Most of the downgrades were driven by sovereign ratings in emerging markets, notably Belarus, Kuwait, Turkey and Ukraine. Our rating actions on Russia-related FIs are not captured in our count as the ratings were withdrawn before end-1Q22.
For banks, there were only three negative actions not linked to sovereign rating actions. We took negative actions on several non-bank financial institutions (NBFIs) due to increased leverage, and downgraded two NBFIs to ‘RD’ (Restricted Default) following refinancing-related distressed debt exchanges.
Non-sovereign-driven negative actions on insurers were driven by M&A and deterioration in financial performance.
The bank and NBFI sectors are still some way off full recovery, partly dependent on sovereign developments. Downgrade risks for global FIs remain concentrated in Latin America, the Middle East and Africa, as well as in Asia-Pacific emerging markets for banks.
