Financial institutions are beginning to stabilise as one-in-five credit ratings from Fitch Ratings changed to ‘stable’ from ‘negative’ during the first quarter of 2021.
The ratings agency said this signalled that near-term ratings risks were easing but that downside risks remained, including potential further COVID-19 waves, weakened sovereign credit profiles and an economic fallout as governments gradually withdraw pandemic-related economic support.
Fitch took 317 rating actions during Q1 which led to 66% unchanged ratings and outlooks, 20% led to outlook revisions to stable from negative, and 11% of rating actions were negative, evenly split between downgrades and outlook revisions to negative.
“Banks had the highest proportion of negative rating actions in Q121, reflecting sovereign rating actions and weakening standalone credit profiles. Non-bank financial institutions (NBFI) downgrades reflected a mix of downgrades of corporate parents, sovereigns, standalone credit weaknesses and mergers and acquisitions,” it said.
“The proportion of global financial institutions (FI) ratings on ‘negative outlook’ or ‘watch’ continues to decline but remains high by historical standards despite the mitigating macroeconomic effects of fiscal and monetary stimulus, with 54% of bank ratings, 33% of NBFI ratings and 24% of insurance ratings on negative outlook or watch at end-Q121.”
Fitch noted it expected stabilisation trends during the rest of 2021 to vary by region due to the different speeds of economic recovery and different degrees of exposure to sectors that were most affected by the pandemic.
“Several FI ratings are sensitive to the pressure that remains on some sovereign ratings, particularly in emerging markets, and on those corporate sectors and asset classes worst affected by the pandemic, such as leisure and hospitality,” it said.
