Fitch: European Bank Rating Prospects More Affected By Support

Wed May 28, 2014 9:40am EDT

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(The following statement was released by the rating agency) Link to Fitch Ratings' Report: Global Quarterly Bank Rating Trends 1Q14 here LONDON, May 28 (Fitch) European bank rating prospects are more affected by weakening state support than those for banks in other parts of the world, Fitch Ratings says. Banks in European developed markets experienced the largest increase in the proportion of Negative Outlooks assigned to bank Issuer Default Ratings (IDRs) in 1Q14, mainly due to our review of state support. Outlook stability for banks in developed markets, which had been increasing, fell in 1Q14, mostly among European banks. Nearly half of IDRs assigned to European developed market banks are now on Negative Outlook/Watch, while stability in developed markets in the Americas, including the US, and Asia/Australasia remains high. The Outlook changes largely reflect our view that implicit sovereign support for banks is being reduced. Most of the affected banks are likely to be downgraded within the next one to two years. The support review had greater impact in European developed markets because effective bank resolution frameworks are more advanced than in most other parts of the world. These banks also have a high 29% of IDRs driven by state support, with a further 3% driven by support from parents that are state supported. This leaves them more vulnerable to evolving support dynamics. In contrast, only 6% of bank IDRs are driven by state support in developed markets in the Americas, including the US, which is also more advanced with the resolution agenda. There is less urgency in most emerging markets to push through the resolution framework or impose losses on senior creditors of failed banks, even though sovereign support is more prominent. Globally, support-driven ratings account for 38% of bank IDRs on balance, with a higher proportion at emerging markets (44%) than at developed markets (31%) at end-1Q14. Most countries in emerging markets were unaffected by the support review. Overall, European banks had a weak first quarter in terms of rating trends. Our analysis of global bank ratings showed they were involved in 82% of IDR downgrades in 1Q14. This was largely in European emerging markets, partly reflecting the downgrade of Ukraine's sovereign rating. Outside of Europe, bank ratings trends point to stable and marginally positive expectations for emerging market bank ratings and relatively stable trends for developed market banks. For further details of quarterly global bank ratings, see "Global Bank Rating Trends 1Q14", available at www.fitchratings.com. Contact: Janine Dow Senior Director Financial Institutions +44 20 3530 1464 Fitch Ratings Limited 30 North Colonnade London E14 5GN Cynthia Chan Senior Director Fitch Wire +44 20 3530 1655 Media Relations: Hannah Huntly, London, Tel: +44 20 3530 1153, Email: hannah.huntly@fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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