Amid reduced expectations of government support, Fitch Ratings has revised its outlook on 18 European banks to negative from stable.
The rating agency says that the outlooks on another 18 banks in the region were already negative, and that the revisions follow a global review of sovereign support for banks. The list of affected banks includes Deutsche Bank, Societe Generale, Royal Bank Group of Scotland plc, and Lloyds Banking Group.
The support ratings that Fitch applies to the banks are likely to be downgraded in the next couple of years, it says, to “reflect further progress being made in implementing the legislative and practical aspects of enabling effective bank resolution frameworks, thereby reducing implicit sovereign support for the banks.”
Fitch notes that most of the provisions of the Bank Recovery and Resolution Directive (BRRD) have to be in place by the end of 2014. Only the bail-in tool (currently in place in the UK and Cyprus) has a later deadline (January 2016). “While extraordinary support for banks will still be possible after implementation of the provisions of BRRD, the hurdles to provide support will be higher,” it says.
Additionally, the adoption of the single supervisory mechanism will reduce national influence over supervision and licensing decisions in the banking industry, in favour of the European Central Bank (ECB).