S&P: Global banks back on course
The global banking sector is back on course. Ratings trends have stabilised in 2021 and S&P Global Ratings thinks this will continue in 2022.
Net rating outlooks have improved significantly, from negative 31% in October 2020, to positive 2% in November 2021. About 74% of banks are on stable outlook, with 12% on negative outlook, and 14% on positive outlook.
“All said, bank balance sheets are in reasonably good shape heading into 2022. This will buffer headwinds. Bank capital has strengthened materially since the global financial crisis, and asset quality has improved,” said S&P Global Ratings credit analyst Gavin Gunning. “These factors assisted banks through the pandemic.”
The attached report contains a summary of the key risks and trends facing banks globally and regionally.
Government support benefited households and corporates after COVID-19 hit. This support has in turn benefited banks. However, S&P Global Ratings says the pandemic’s freak nature means it offers no reliable blueprint to how public authorities will handle future stress scenarios.
The report identifies five key risks to watch:
| • | The possibility of the economic recovery envisaged in our base case stalling. |
| • | High debt leverage in the corporate and government sectors resulting in higher corporate insolvencies and less government support for banks than anticipated. |
| • | Disorderly reflation and market disruption. |
| • | Property sector challenges, notably the stress in China and spiking house prices in many markets. |
| • | The risk that the low rates environment and the fintech evolution challenge banking business models. |
“Given the recent improvement in rating outlooks, many bank ratings have scope to solidify. The net outlook bias for banks is unlikely to sustainably improve. Noted is the global corporate sector bias of about negative 6%, in November 2021. Banks’ capacity to positively diverge from the financial strength of the corporate and household sectors is limited, over the long-term,” Mr. Gunning said.
S&P Global Ratings credit analyst Alexandre Birry added that the delay of the latest revision to the Basel III capital rules also raises questions about if and when regulatory capital buffers should be used.
“We believe that regulators may explore further the option of reducing some of the fixed buffer requirements and compensate with potentially larger countercyclical buffers in good times,” Mr. Birry said.
The report also notes that the digital ecosystem continues to evolve, and the digital transformation of business models may be the difference between failure and success.
LIVE WEBINAR AND Q&A
Please join our S&P Global Ratings analysts for live webinars and Q&As on Wednesday, Dec. 15. Our analysts from Financial Institutions teams across the globe will discuss their views on our global banking outlook for 2022. Register for one of the sessions here:
APAC/Middle East and Africa session: https://event.on24.com/wcc/r/3570196/1BEE93D26959B75A5D42B232EBC7FEB6?partnerref=Email1
Americas/EMEA session: https://event.on24.com/wcc/r/3570196/1BEE93D26959B75A5D42B232EBC7FEB6?partnerref=Email1
This report does not constitute a rating action.
