The operating environment for banks remains benign on an almost global basis, says Fitch Ratings in a new report.

This steady state is reflected in the considerable degree of stability shown by bank ratings. More than 85% of banks globally possess a stable outlook. Positive outlooks are attached to 8.5% of global bank ratings, compared to only 2.8% with negative outlooks, the rating agency reports. The remaining percentages, 1% or less, include those institutions on watch.

“Banks are still proving themselves to be significant beneficiaries of the favourable winds blowing in the global economy, which mirrors the high degree of stability in their ratings,” said Gerry Rawcliffe, managing director in Fitch’s Financial Institutions Group in London. “However, purely cyclical improvements will not push ratings higher and upgrades are essentially tied to structural improvements in banks’ risk profiles.”

The overall level of rating watches, which tend to be key indicators of event risk, has remained broadly static, Fitch notes. “This indicates that we have not seen a marked increase in the level of corporate activity, at least not involving transaction sizes that are material to credit ratings,” it says.

In the developed markets the positive outlooks are spread pretty evenly across the American, European and Asian markets, with the most notable feature perhaps being the ongoing return to health of the Japanese banking system, it suggests.

“In emerging markets the overall bias is still positive, although at a regional level we now have a slight negative bias in Latin America, largely driven by Venezuela,” Fitch points out. “However, it should be noted that this shift in bias was largely the result of 14 upgrades of Brazilian banks, with the concomitant revision in their outlooks from positive to stable. In Emerging Middle East and Africa, the strong positive bias was largely driven by Turkey where positive outlooks on 17 banks are connected to a similar outlook on the Turkish sovereign rating.”

After rising steadily over three quarters to reach a peak in the fourth quarter of 2005, the number of rating actions has dropped back in the first half of 2006, Fitch reports. The ratio of positive actions to negative actions has been positive in both quarters of 2006 with this being most markedly the case in the second quarter when the ratio was almost 13:1.

The second quarter was particularly favourable in emerging markets with rating upgrades for Brazilian and Russian banks being the most notable components of a 37:1 positive/negative action ratio. In the Developed Markets there was less geographic concentration of rating actions, but there was still a strong positive bias.