Banks in emerging markets of the GCC countries, Nigeria, Russia, South Africa, and Turkey will stay under pressure for the remainder of 2016 and 2017, according to a new report from S&P Global Ratings.
“The operating environments in these emerging banking markets are suffering the effects of low commodity prices on economic growth and investment activity, still significant political and geopolitical risks, and weakening local currencies outside the GCC,” said S&P Global ratings analyst Mohamed Damak.
“Positively, over the past few months, we have seen a slow return of foreign investors to some of these markets because interest rates remain low or negative in developing markets and investors are actively hunting for higher yield,” Damak added, commenting on the report entitled “Risks Remain High For Several EMEA Emerging Markets Banking Sectors”.
“We think that two important factors could influence the overall performance of banks in countries in our study. On the downside would be an unexpected additional drop in commodities prices or materialization of idiosyncratic risks such as political risks or lack of economic reforms. On the upside, however, a continuation of the recovery in capital inflows that we’ve observed over the past few months could ease the liquidity pressure in some of these markets.
“Overall, we expect the trend of deteriorating financial performance to continue, as demonstrated by the negative outlook or CreditWatch negative (negative bias) on our bank ratings in these countries,” said Damak.
“Overall, 65 per cent of the outlooks/CreditWatch on bank ratings in these countries was negative as of September 15. We see Nigerian and small Russian banks as being the most vulnerable to default risk among our group, while GCC banks and South African banks are less vulnerable, in our opinion,” he concluded. – TradeArabia News Service