Systemic risk to rise worldwide - Emirates24|7

Systemic risk to rise worldwide


The bank systemic risk continues to rise worldwide due to sub-prime crisis, while credit growth will decline sharply this year, a new research has revealed.

“Large, global banks in several major developed countries have been hard hit by the US sub-prime crisis, marking this crisis out from more familiar, country-specific banking crises,” said Richard Fox, senior director in Fitch’s sovereign team, in Bank Systemic Risk report released yesterday.

“The US and Swiss banking systems have been toppled from their top, ‘very strong’ ranking based on Fitch’s Banking System Indicator. But this still leaves them on par with most developed country banking systems which remain ‘strong’.

In the US, losses and write-downs to date, while still mounting, fall well short of aggregate system capital – a conventional measure of the severity of a banking crisis,” Fox said.Credit growth is now slowing rapidly but strong sovereign support has averted systemic failure, Fitch reports.

“The global real credit growth is forecast to slow sharply to nine per cent this year, from more than 14 per cent last year, and leading indicators of potential stress are flashing in more emerging market regions.”
Fitch said ratings of more than 30 United States banks have been downgraded since October. “Fitch expects ratings pressure to remain for the remainder of 2008, but a further decline in the BSI is not envisioned,” said James Moss, managing director of Fitch’s North American Financial Institutions team.

“The largest US banks have raised in excess of $60 billion (Dh220bn) in new capital to date, often in amounts representing 10 per cent or more of a firm’s capital base.”
The Fitch report finds that developed countries in aggregate have more elevated macro prudential indicators (MPI) than emerging markets.

Four developed countries are in Fitch’s highest macro prudential risk category (MPI 3), of which Iceland continues to give most cause for concern as it placed three major banks on rating watch negative (RWN) last week.

Australia, Canada and Ireland are also MPI 3, though the trends exhibited there are nowhere near as extreme as in Iceland.


GCC Banking Systems Strong


The strong banking systems of the Gulf Co-operation Council countries are on par with the typical developed country system, the Fitch report said.

Credit growth in the region has been rapid for due to abundant liquidity, strong demand and falling real interest rates. Inflation has reached double digits in Qatar and the UAE and both the countries rise to MPI 3 in the report.