Global Bank Rating Downgrades Outpace Upgrades, Outlooks Stabilize

by: Research Recap

Fitch Ratings says that the number of global bank rating downgrades increased to 36 in the fourth quarter of 2010, up from 28 in the previous quarter, while the number of rating upgrades remained constant. Fitch downgraded 36 of the banks included in its quarterly study, half of which were due to continued sovereign debt concerns in developed peripheral Europe. In contrast, only 25 banks had their ratings upgraded, most of which were domiciled in emerging Eastern Europe.

Fitch says banks placed on Rating Watch Negative (RWN) almost doubled to 31, reflecting the large increase in event risk. The release of the Dodd-Frank Act in the US triggered several US banks and their foreign subsidiaries to be placed on RWN. Several Greek and Irish banks were also placed on RWN following the similar alert on their respective sovereign ratings.

Overall, the total number of positive actions taken on bank ratings increased marginally to 62 from 57, with 38 of these actions concentrated in the emerging markets. In contrast, the total negative actions saw a significant increase to 73 from 44, with the majority (54) being concentrated in the developed markets.

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Bank ratings

Fitch expects the majority of global bank ratings to be stable, with 74.9% of ratings having Stable Outlooks.

The ratio of Positive to Negative Outlooks continued to improve globally, with the proportion of Positive Outlooks increasing to 6.5% of the banks rated, and the proportion of Negative Outlooks falling to 10.3%. Performance across regions continued to diverge, with emerging Asia and Turkey reporting significant improvements in their ratios of Positive to Negative Outlooks, while developed-Europe reported a worsened outlook for bank ratings with no Positive Outlooks and 36 Negative Outlooks.

The report also reported a falling trend in total number of rated entities, highlighting the consolidation taking place within the banking industry since the financial crisis. In particular, the number of Spanish banks included in the study dropped by 28% to 36, as several savings banks completed mergers or membership of an Institutional Protection Scheme (SIP).