As pandemic pressures ease, credit conditions for global financial institutions are improving too, Fitch Ratings reports.
The rating agency said the number of negative rating outlooks and watches continued to decline in the third quarter.
As a result, the proportion of banks on negative outlook or watch fell to 30% from 40% at the end of the second quarter, Fitch said.
“Nevertheless, the banking sector’s recovery is slower than that for non-bank financial institutions and insurance, which ended the quarter with net negative proportions of about 15% and 1%, respectively,” it said.
In the third quarter, insurance companies had the highest share of positive ratings actions, with the changes “mostly driven by improving financial performance or M&A.”
Among banks, positive rating actions were largely due to “a combination of improved earnings and asset quality metrics helped by stabilizing operating environments, or by positive actions on parent or sovereign ratings,” Fitch noted.
By region, downgrade risks for global financial institutions are concentrated in Latin America, along with parts of the Middle East and Africa, Fitch said, where banks “could face pressure as monetary policy normalizes and fiscal support wanes.”
“We believe peak fiscal stimulus has passed, with the monetary policy debate increasingly focused on inflationary pressures,” Fitch said.