S&P notes three key risks to banking industry worldwide
Standard & Poor's Ratings Services sees three key risks that continue to dominate the global banking landscape in 2015: diminishing government support, soft economic conditions, and evolving regulation, as noted in a report titled "The 2015 Global Credit
While S&P has reviewed its negative outlook related to diminishing government support in some European jurisdictions, this factor continues to exert downward pressure on ratings, partly offset by alternative forms of loss-absorbing capital that some banks are building.
The research also found that economic conditions were providing limited tailwinds for banks, although S&P believes that most are well placed to absorb growth that is somewhat weaker than expected. However, unexpected developments, such as a disorderly decline in the Chinese property market, could result in downgrades.
While contagion risks from a potential Greek exit from the euro zone are lower than in 2010-2011, such an event could increase risk aversion among investors, lenders and consumers, weakening the upturn.
While many of the rules and timelines for bank regulatory reform are now largely known, completion of the agenda is still a source of ratings uncertainty. The scope and complexity of the reforms over the past five years are historic, S&P believes. And although most components of existing banking reforms in its view make sense on their own, the cumulative impact of these and future regulatory changes is still unclear and may have unintended consequences.
In the Asia-Pacific region, the S&P outlook for credit quality for the region’s 266 financial institutions across 19 jurisdictions (as of June 30) continues to remains broadly stable.
The key credit factors for Asia-Pacific banks this year include domestic economic trends in most jurisdictions that are generally supportive of continuing ratings stability, while the weakening Chinese property market could have negative knock-on effects in the short to medium term on domestic financial institutions. China’s recent equity-market volatility should be manageable in terms of ratings on most of the financial institutions S&P rates in China and elsewhere throughout the Asia-Pacific region.
Underpinning its expectation of continuing ratings stability, many Asia-Pacific governments continue to remain highly supportive towards their banking sectors, in contrast with some jurisdictions in Western Europe and North America.
