Friday, June 3 2011 11:36
Fitch: Managing and/or reducing credit growth remains a key focus for banks and regulators in several major emerging markets (EMs) globally
ArmInfo. June 02 (Fitch) Fitch Ratings says in a newly published special report that managing and/or reducing credit growth remains a key focus for banks and regulators in several major emerging markets (EMs) globally. In contrast, many banking systems in Central and Eastern Europe (CEE) and the Commonwealth of Independent States (CIS) remain highly leveraged, and impaired loan ratios in some of those markets are only expected to stabilise in 2011, Reuters reports.
Rapid credit growth continued in H210-Q111 in many EMs, notably China, Turkey, India and Brazil. Regulators are seeking to moderate this growth in part by using reserve requirements and other regulatory measures, given concerns about the potential impact of interest rate hikes on capital flows and exchange rates.
However, so far there are only limited signs of a slowdown, and it remains to be seen whether the policy mixes adopted will reduce growth in H211 and beyond. In Fitch's view, the risks from credit growth are particularly pronounced in China, due to the high level of credit/GDP, weaknesses in loan underwriting and tight capital ratios.
Risks in other growth markets continue to be mitigated by still low (in Argentina, Armenia, Colombia, Georgia, Indonesia, Peru and Venezuela) or moderate (in Brazil, India, Qatar, Thailand and Turkey) credit/GDP ratios, mostly healthy lending margins and solid or high economic growth (with the exception of Venezuela). Capitalisation of these systems is generally adequate (although tighter in Venezuela, Colombia and India), and loans/deposits ratios are mostly below 100% (albeit higher in Brazil).
Despite a return to economic growth across the CEE/CIS region in 2010, impaired loan ratios increased sharply in Bulgaria, Romania and Ukraine, and also rose in Croatia, Latvia, Hungary and Slovenia, reflecting the lagged impact of economic contraction/recovery on bank asset quality. In 2011, Fitch expects CEE/CIS asset quality ratios to stabilise, or at least deteriorate less rapidly, as the benefits of economic growth feed through.
However, CEE/CIS banks still need to address high absolute NPL levels, most notably in Kazakhstan, Ukraine, Latvia and Lithuania, where Fitch also has concerns about capital quality and/or reserve coverage. Loans/GDP ratios remain high in Latvia, Estonia and Slovenia, and loans/ deposits ratios are elevated in the Baltics, CIS (ex-Russia), Hungary and Slovenia, suggesting growth prospects are limited and further deleveraging may be required. Pre-impairment performance is weak in the Baltics, Kazakhstan and Slovenia.
Fitch expects the negative impact on banks in Gulf Co-operation Council (GCC) countries from the political instability in the Middle East and North Africa (MENA) to be manageable. Political/social tensions in GCC markets in which sovereigns have strong balance sheets appear to be contained. Fitch has not yet established any significant deposit outflow or asset quality deterioration in the more affected MENA markets where it has bank coverage, including Tunisia, Egypt and Bahrain.
The report, entitled 'EM Banking System Datawatch: Managing the Credit Build Up', is available on www.fitchratings.com
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