Global bank downgrades jump 100% in Q2

The number of bank rating downgrades globally more than doubled to 33 in the second quarter 2010 from 16 in the previous quarter; but the Middle East and Africa (Mena) region saw just four 'negative' outlooks and no downgrades, according to an international ratings agency. Almost half of the downgrades were due to either negative rating actions that were taken on the Spanish and Greek sovereigns or to asset quality and earnings challenges facing banks due to the tough economic conditions in these countries, Fitch Ratings said in its second-quarter report. It said signs of stress re‐emerged in the financial sector in Q2 2010 — especially in Europe — after it appeared to stabilise in earlier quarters. Fears over sovereign creditworthiness and a double‐dip recession grew even as the global economy recovered further. In developed markets, total rating actions increased significantly to 40 in Q2. Only one‐fifth of total rating actions were positive. There were no upgrades and 80 per cent of total rating actions were negative. Consequently the ratio of positive to negative rating actions deteriorated to −4.0 from −2.0 in Q1 2010. In Q2 2010, downgrades in the developed markets doubled to 25, making up 62.5 per cent of all rating actions. Rating actions in emerging markets halved to 43 in Q2 2010. While rating upgrades remained broadly stable, there were sharp decreases in changes to positive watches and outlooks. At the same time, total negative rating actions increased only slightly in Q2 2010. Driven by the significant drop in positive rating actions, the ratio of positive to negative rating actionsdeteriorated markedly but remained positive at +3.3. In emerging markets, rating downgrades doubled to eight in Q2, which made up 18.6 per cent of all rating actions. About 60 per cent of downgrades related to emerging Europe, where the subsidiaries of Greek banks were downgraded to ‘BB+’ from ‘BBB−’, following the negative rating action on the Greek sovereign. In Q2 2010, Mena saw 'stable outlooks' maintained at a very high level of 95 per cent as there were four 'negative outlooks' but no downgrades. Two banks from South Africa remained on 'negative outlook', Absa Bank Limited (‘A’) and First Rand Bank Limited (‘BBB+’). The negative outlooks reflect the continuing downward pressure on South Africa’s Country Ceiling since the revision of the Outlook of the South African sovereign rating. The UAE‐based Dubai Bank (‘BBB−’) and Bahrain‐based Taib Bank (‘B+’) were assigned negative outlooks. The revision of the banks’ Outlooks is a result of uncertain strategies, weakened financials and low profit expectations for 2010, Fitch said. In its trends in rating outlooks and watches, Fitch said most developed market bank ratings in Q2 (66.1 per cent) continued to have Stable Outlooks. Both the proportion of 'positive' (2.5 per cent) and 'negative' (22.2 per cent) outlooks remained at similar levels. Positive watches increased slightly to 2.0 per cent from 1.0 per cent in Q1 2010 and negative watches fell to 6.2 per cent from 7.4 per cent in Q1 2010. The ratio of negative to positive Outlooks improved to −9.2 at end‐Q2 from −11.9 at end‐Q1. The ratio of negative to positive outlooks in emerging markets improved markedly again in Q2 2010. This was significantly affected by the Outlook change of the Brazil sovereign from positive from stable, which led to 12 Brazilian banks also being put on positive outlook. At −2.0, the ratio of positive to negative outlooks reached a level last seen in Q1 2006 and improved significantly compared with its all‐time low in Q3 2009, when it fell to a value of −60.0. This positive global development in the ratio was also supported by both emerging Europe and Asia.