The ongoing illiquid and volatile conditions in global financial markets are continuing to put pressure on bank ratings, says Fitch Ratings.

In the first quarter, the negative shift in the ratio of positive to negative outlooks continued, while the number of negative rating actions taken during the quarter remained at a comparatively high level, the rating agency said. According to a new report, the operating environment for banks in 2008 is likely to remain challenging and further pockets of negative rating actions are possible.

“Some of the major U.S. banks have been hit particularly hard,” says Alison Le Bras, managing director in Fitch’s Financial Institutions Group. “Although measures by the U.S. Federal Reserve have improved short-term funding, several of the major U.S. commercial and investment banks now have negative outlooks or watches.”

In the first quarter it saw 52 negative rating actions, and the number of positive outlooks compared to negative outlooks continued to decline, standing at 1.7 to 1 at the end of the quarter compared with a peak of around 5 to 1 just one year earlier.

Although the number of negative rating actions in developed markets fell to 41 in the first quarter from 48 in the fourth quarter of 2007, outright downgrades remained historically high at 18. These downgrades were in the developed Americas and Europe.

Banks in emerging markets, on the other hand, have fared better to date, despite some exceptions such as in Kazakhstan. Nevertheless, the ratio of positive to negative outlooks in emerging markets declined further during the quarter, suggesting that the more positive rating trend in these markets may be coming to an end, it said.