Fitch Ratings says in a quarterly report that the number of global bank rating upgrades more than quadrupled to 30, overtaking rating downgrades which fell to 29 in the second quarter of 2011. This was primarily following sovereign actions in emerging markets.
The report highlights the significance of sovereign rating actions in driving bank rating actions in Q211. In the euro zone, Fitch downgraded Greece and Portugal’s sovereign ratings and placed Spain on Negative Outlook, as the sovereign debt challenges increased. These rating actions accounted for 72% of global bank rating downgrades, triggering downgrades for banks dependent on the sovereigns for support, as well as the downgrades of foreign subsidiaries of these banks. 47% of bank rating upgrades were concentrated in Brazil and Panama, following Fitch’s upgrade of Brazil and Panama’s sovereign ratings. Improving sovereign risk profiles in the Philippines, Bulgaria and Hungary also resulted in several positive actions taken on banks domiciled in these countries.
“On a global scale, Stable Outlooks rose to 78.2% (Q1 11: 73.8%) of total rating alerts, as Positive and Negative Outlooks both fell to 7.1% (Q1 11: 8.5%) and 8.0% (Q1 11: 9.6%) respectively. However, developed market banks had 4.8 Negative Outlooks for every Positive Outlook in Q2 11, suggesting some further negative rating action can be expected in the coming months. In contrast, emerging market banks had 2.7 positive Outlooks for every Negative Outlook, improving from 1.9 in Q1 11,” Fitch in a statement said.
In total, it added, Fitch took 48 negative rating actions (including rating downgrades, and the assignment of a Negative Outlook or placement on Rating Watch Negative) on banks in the quarter, compared with 77 in Q1 11. The number of positive rating actions increased to 49 from 34 in Q1 11.