Negative ratings trend to continue

Further negative rating cuts of global banks in the coming months are possible as the operating environment remains tough and the global economy continues to slow, global rating agency Fitch Ratings said yesterday.

There were more than twice as many negative rating actions taken during the second quarter of this year than positive actions, intensifying the negative trend already experienced in the previous two quarters. In its report on "Global Bank Rating Trends", Fitch said the number of positive outlooks compared to negative outlooks assigned to bank ratings has fallen over the past 15 months, with the number of negative outlooks surpassing positive outlooks at end-June 2008.

Although the immediate liquidity risks in the global banking system have been partly alleviated by measures taken by central banks, wider concerns about the extent to which global credit market conditions are likely to feed through to the real economies of developed countries intensified in Q2.

"Banks in developed markets now face the prospect of increased credit costs on top of higher funding costs," said Gerry Rawcliffe, Managing Director and Group Credit Officer in Fitch's Financial Institutions Group. "Furthermore, Fitch does not rule out further write-downs of structured products, including write-downs related to financial guarantors."

During the second quarter there were 69 negative rating actions on banks as opposed to 31 positive actions.