BackS&P warns of risks to banking systems of emerging markets in 2021
The rating agency identified three main risks that banking systems of emerging markets will face in 2021, namely, deterioration in asset-quality indicators; volatile geopolitical environment and domestic policy uncertainty; and the vulnerability to abrupt movements in capital flows.
PremiumMumbai: S&P Global Ratings on Wednesday said that banking systems in emerging markets will face three key risks in 2021 as the covid-19 pandemic and its aftermath dominate the credit story.
For the study, S&P analyzed 15 largest banks in emerging markets like Argentina, Brazil, Chile, China, Colombia, India, Indonesia, Malaysia, Mexico, the Philippines, Russia, Saudi Arabia, South Africa, Thailand, and Turkey.
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The rating agency identified three main risks that banking systems of emerging markets will face in 2021, namely, deterioration in asset-quality indicators as regulatory forbearance measures are lifted; volatile geopolitical environment and domestic policy uncertainty; and the vulnerability to abrupt movements in capital flows.
However, central banks in developed markets are likely to keep exceptionally accommodative monetary policy and for emerging markets, with some key exceptions, it should translate into a stronger economic recovery and favourable financing conditions, it said.
Risks related to vaccine distribution and a spike in covid-19 cases remain acute for emerging markets, and this may delay the economic rebound and increase risks for their banking systems, the rating agency said.
S&P Global Ratings believes that after the rollout of vaccine in several countries, a high degree of uncertainty remains about the evolution of the coronavirus pandemic and its economic effects.
Widespread immunization, that certain countries might achieve by mid-year, will help pave the way for a return to more normal levels of social and economic activity, it said. Based on this assumption about vaccine-timing in assessing the economic and credit implications associated with the pandemic, the rating agency will update assumptions and estimates accordingly.
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