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IHS Banking Risk Team on Emerging Market Banking Risk

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  • 1. IHS Research Note: Emerging Market Banking Sector Outlook The IHS Banking Risk Team highlights key risks for the emerging market banking sector in the month ahead, specifically for China, Ukraine, Brazil, the UAE and South Africa. For questions/further comment please contact the author of the desired section or the press office via press@ihs.com ___________________________________________________________________ Key points:  China – Renminbi-denominated bond in London and fundraising activities in November spotlight  Ukraine – Divestments from Ukrainian banking market amid ongoing tension  Brazil – Lending deceleration by Brazilian state banks  UAE – Debt rollovers by UAE conglomerates  South Africa – Banking sector downgraded to Medium Risk
  • 2. China – Renminbi-denominated bond in London and fundraising activities in November spotlight | Contact: Ruta Cereskeviciute, Senior Economist, Ruta.Cereskeviciute@ihs.com  “Contributing to the renminbi internationalisation efforts by the country's authorities, China's largest lender, ICBC, may become the first Chinese lender to launch a renminbi-denominated bond in London, as signalled by UK Chancellor of the Exchequer George Osborne in mid-October.  Fundraising activities by Chinese banks will be in the spotlight in November. After winning regulatory approval from the China Securities Regulatory Commission to sell as many as 12 billion shares overseas, China Everbright Bank will likely clarify its fundraising strategy in the weeks to come.  Meanwhile, the Hong Kong Stock Exchange may attract more midsized mainland Chinese banks that are looking to replenish their capital base to meet tighter capital regulations under the Basel III directive. Among others, Huishang Bank will finalise the price of its IPO in the first half of November, completing the up-to USD1.3billion listing. China Construction Bank, one of the country's top-four state-owned lenders, is reportedly looking to issue offshore bonds that would qualify as capital-strengthening instruments. The bank may determine the size and the currency of the offering in the near term.” Ukraine – Divestments from Ukrainian banking market amid ongoing tensions | Contact: Tomás Oliveira da Silva, Economist, Tomas.OliveiradaSilva@ihs.com  “With Ukraine on the brink of decisive and far-reaching political movements, three of Central and Eastern Europe's largest lenders are investigating exiting the country. Italy's UniCredit and Intesa Sanpaolo are officially seeking a buyer for their Ukrainian units, while Austria's Raiffeisen said it is keeping its options open regarding Ukraine. In October, the IHS Banking Risk team downgraded the
  • 3. outlook on Ukraine's risk rating to Negative from Stable on the back of a deterioration of Ukraine's macroeconomic imbalances, combined with recent political pressures that could have severe implications for financial stability.” Brazil – Lending deceleration by Brazilian state banks | Contact: Antonio Timoner-Salva, Senior Economist, Antonio.TimonerSalva@ihs.com  “As Brazil's federal government is set to scale down its financial support to the state-owned Caixa Econômica Federal (Caixa) and National Bank for Economic and Social Development (Banco Nacional de Desenvolvimento Econômico e Social (BNDES), these lenders are expected to slow down their credit expansion plans. Still recent regulatory easing on subsidised credit programmes will help to prolong robust loan expansion, although this will take place at a less aggressive pace than in recent quarters. Private banks are likely to see their NPL ratios drop further, with subsequent lower provisioning levels supporting profitability and animating an incipient lending revival.” UAE – Debt rollovers by UAE conglomerates | Contact: Alyssa Grzelak, Senior Economist, Alyssa.Grzelak@ihs.com  “Although improving economic fundamentals in the United Arab Emirates will help provide GREs with the funds needed to meet some looming debt payments, given the estimated USD30 billion coming due in 2014, it is likely that additional restructuring deals will be announced in the near term. The transparency surrounding and success of these rollovers will have important implications for the UAE banking sector given banks' elevated exposure to these entities. The UAE central bank is expected to publish the final version of regulations that seek to restrict lending to GREs in an attempt to insulate the banking sector better from the types of excessive leveraging seen in the sector in the run-up to the 2009 Dubai debt
  • 4. crisis. The limitation on banks' exposure to GREs and local governments is expected to be watered down considerably from the measure originally proposed in 2012 following a public outcry from large banks when the measures were first announced.” South Africa – Banking sector downgraded to Medium Risk | Contact: Alyssa Grzelak, Senior Economist, Alyssa.Grzelak@ihs.com  “The IHS Banking Risk Team downgraded our risk rating of the South African banking sector by five points to 30 (Medium Risk) on the back of qualitative risk factors associated with the sector's unsecured lending boom. Unsecured credit more than doubled over a three-year period to 15% of the sector's total loan book at the end of the first quarter of 2013. Compounding the risks associated with this high credit growth is the low interest-rate environment in which this debt has been accumulated, the highly indebted nature of South African households, and macroeconomic risk factors. The outlook on our risk rating was changed from Negative to Stable.”