>Global Bank Rating Trends Q109 (Fitch Ratings)

Introduction
This publication continues the series dating from the beginning of 2006, and presents data for the four quarters up to and including Q109. Data from Q105 are included in earlier publications. New charts showing the distribution across rating categories are also included in this publication.

Global Overview
Significant economic pressures continue, particularly in some emerging markets, although the crisis conditions following the bankruptcy of Lehman Brothers on 15 September 2008 have abated. This is partly due to the liquidity and capital support from the governments and the acquisitions of weaker banks by stronger banks. In addition to their willingness, the ability of sovereigns to continue to support their banking systems has received increased focus recently. Fitch Ratings forecasts that the real economies of many developed economies will contract significantly in 2009. Fitch also forecasts world GDP will decline by 2.7% this year, although growth in the BRICs (Brazil, Russia, India and China) is expected to remain positive at 3.2%.

Elsewhere in emerging markets, there has been increased attention on banking operations in eastern Europe, and several eastern European countries have received IMF assistance.
Negative rating actions in Q109 remained high, although the number was lower than the peak in Q408. Fitch took 188 negative rating actions in Q109, compared with 266 in Q408. The reduction was mainly caused by less negative rating actions in emerging markets in Q109, while negative rating actions in developed markets remained high. In contrast, there were no positive actions in emerging markets and only a small number of positive actions in developed markets in Q109. This resulted in the worst ratio of negative to positive actions since the series began in Q105 (−12.5).

There is also substantial negativity in the Outlooks assigned to banks’ Long‐Term Issuer Default Ratings (IDRs) globally in Q109. The number of global Negative Outlooks has exceeded the number of Positive Outlooks since end‐Q208. The global ratio of Negative to Positive Outlooks deteriorated significantly, to −16.2 at end‐ Q109 from −9.6 at end‐Q408 (see Chart 1). By end‐Q109, the ratio stood at −11.3 in developed markets (end‐Q408: −6.2) and −24.0 in emerging markets (end‐Q408: −15.0). Significant differences remain among regions in both developed and emerging markets. In developed markets, this ratio varied from −3.7 in the developed Americas to −25.0 in developed Europe. In emerging markets, the ratio at end‐Q109 ranged from −2.4 in the emerging Americas to −75.0 in emerging Europe.

The percentage of Fitch’s global bank ratings universe with Stable Outlooks continued to decline moderately (see Table 1). However, the majority of ratings (66.1%) had Stable Outlooks at
end‐Q109. Most of the remaining banks had Negative Outlooks at end‐Q109 (24.1%). In addition, 1.5% of bank ratings were on Positive Outlook.

The negativity in Fitch’s bank ratings suggests the negative trend will continue. This is somewhat mitigated by Fitch’s view on sovereign support within the banking sector (see “Updated Support Rating Floors for Major Banks in High‐Grade Sovereigns”, dated 9 April 2009). Fitch’s Support Rating Floors in many developed markets remain at relatively high levels and therefore limit downgrades in Long‐ Term IDRs.

Trends in Rating Outlooks and Watches

Developed Markets
Although 68.6% of bank ratings in developed markets still had Stable Outlooks at end‐Q109, the proportion of Negative Outlooks increased to 19.5% (end‐Q408: 16.6%). There was an increase in Negative Outlooks in developed Asia during Q109. However, the largest numbers of Negative Outlooks at end‐Q109 were in developed Europe (50) and the developed Americas (22), with no change in the number from end‐Q408. The ratios of Negative to Positive Outlooks have deteriorated significantly in the developed markets overall and particularly in developed Europe and developed Asia (see Chart 2). In addition, there were 38 Negative Watches in developed markets at end‐ Q109.

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