Emerging Market Banks to Face Divergent Challenges in 2011

Emerging market (EM) banks in different regions will face divergent challenges in 2011, according to Fitch. However, most EM bank ratings have a stable outlook as ratings adequately reflect current trends and risks.

Emerging market banks growth and performance trends have diverged further in 2010, a process which was evident in 2009 and that Fitch expects to continue in 2011. Banks in much of Asia and Latin America, and Turkey, have resumed growth, having performed relatively well during the crisis. In contrast, most central and eastern Europe (CEE) and Confederation of Independent States (CIS) lenders are still focused on asset quality management, and some have continued to deleverage, following the sharp deterioration in loan performance and earnings in 2009.

Accordingly, Fitch expects EM banks in different regions to face different challenges in 2011. The main task for lenders in growth markets will be to maintain satisfactory underwriting standards, in particular where interest rates remain low and risks of asset bubbles exist. However, banks in most of emerging Europe will need to stabilise and improve asset quality, strengthen domestic funding franchises and protect top line performance.

Although most emerging market banks have a stable outlook, some ratings could be upgraded over time as sovereign credit profiles and operating environments in individual countries gradually converge towards more developed markets. However, downgrades are also possible in both growth markets (if asset quality risks increase markedly) and markets more negatively affected by the crisis (if loan losses exceed current expectations and performance weakens further).


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