A-Pac banks rating actions highlight importance of sovereign support: Fitch
Jun 19, 2020
Hong Kong, June 19 : Asia Pacific emerging market (EM) banks whose ratings benefit from sovereign support could be affected if the economic impact of coronavirus deepens and governments' policy responses fail to adequately mitigate risks to the economy, Fitch Ratings has said.
Over 100 A-Pac banks ratings were reviewed between March 12 and June 1 with negative rating actions -- mainly at unchanged rating levels representing just over 57 per cent of total A-Pac rating actions taken, according to the Fitch report.
Following the review of its portfolio of rated A-Pac banks, 42 per cent of rating actions taken by Fitch comprised long-term issuer default rating (IDR) affirmations with the outlook maintained.
"This reflects bank credit metrics providing rating headroom or our belief that around half of bank IDRs in A-Pac are driven by unchanged expectations of external support, mainly from sovereigns," said Fitch.
Developed market (DM) ratings fared worse than EM ratings with negative rating actions comprising just over 65 per cent of actions taken on DM banking groups compared with about 48 per cent for EM.
The number of downgrades was equal among DM and EM jurisdictions at 10 each. About half of EM banking groups' IDRs were affirmed with no outlook or rating watch changes due mainly to sovereign support.
However, for predominantly EM-based banking groups whose IDRs benefit from sovereign support, the ratings of supporting entities (including sovereigns) could be affected if the economic impact of the coronavirus deepens and governments' policy responses fail to adequately mitigate risks to the economy, or the fiscal burden of mitigating the risks is outsized.
In these cases, actions taken on their supporting sovereign would then be mirrored by the banks' IDRs. This has already happened for banks in Malaysia, Thailand, Vietnam and the Philippines, said Fitch.
