RPT-Fitch: European Bank Intrinsic Strength Shows Signs of Recovery

Wed Jul 23, 2014 5:59am EDT

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July 23 (Reuters) - (The following statement was released by the rating agency)

Viability Ratings on banks in European developed markets (DM) have improved slightly since the start of 2014, indicating early signs of recovery in European banks' intrinsic creditworthiness, Fitch Ratings says.

DM European banks had the highest number of VR upgrades globally in 2Q14. There were nine VR upgrades in the region in 2Q14 and eight upgrades in 1Q14, so banks in DM Europe accounted for 40% of VR upgrades globally in 1H14. The region's VR upgrades far outweighed VR downgrades. These positive trends are flowing through to bank Issuer Default Ratings (IDRs). European emerging-market banks accounted for 26% of global IDR upgrades, mostly VR driven, in 2Q14.

The trends were partly due to improving macroeconomic conditions. For the first time since 2009, no eurozone country is on Negative Outlook. Progress made in banks' restructuring plans contributed to the stabilisation in the region.

But prospects for DM European banks' IDRs remain tough - around 44% of IDRs are on Negative Outlook/Watch - largely but not exclusively due to our view that implicit sovereign support for banks is being reduced. Our support review in March had greater impact in DM Europe than in other regions because effective bank resolution frameworks are more advanced there than in other parts of the world apart from the US. In addition, a relatively high proportion of bank IDRs in DM Europe (around 40%) factor in and are driven by support rather than intrinsic financial strength. Around a third of DM Europe bank ratings are driven by state support. This support is likely to decline substantially by end-1H15.

Outside Europe, bank rating trends point to stable and marginally improving expectations for DM banks. Outlook stability remains high in DM Americas and Asia/Australasia. Global emerging-market bank rating stability fell in 2Q14 in all areas except Asia; the proportion of Stable Outlooks has declined across all emerging-market regions in the last four quarters.

For further details of quarterly global bank ratings, see "Global Bank Rating Trends 2Q14", available at www.fitchratings.com.

Link to Fitch Ratings' Report: Global Quarterly Bank Rating Trends 2Q14=

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