The ihs banking risk service highlights key risks and developments for the em banking sector

  • 208 views
Uploaded on

 

  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Be the first to comment
    Be the first to like this
No Downloads

Views

Total Views
208
On Slideshare
0
From Embeds
0
Number of Embeds
1

Actions

Shares
Downloads
0
Comments
0
Likes
0

Embeds 0

No embeds

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
    No notes for slide

Transcript

  • 1. The IHS Banking Risk Service highlights key risks and developments for the emerging market banking sector in the month ahead, specifically for China, Vietnam, India, Thailand, Kazakhstan, Turkey, Hungary, Ecuador, Brazil, UAE, S. Africa, Nigeria, and Zimbabwe. For questions/further comment please contact the author of the desired section. NOTE: If you’d rather not receive emails like this in the future, please let the IHS press team know. -0- Emerging Market Banking Sector Outlook (February 2014) Ruta Cereskeviciute, Senior Economist, Singapore (Asia Pacific & Eastern Europe) Antonio Timoner-Salva, Senior Economist, London, UK (Latin America) Alyssa Grzelak, Senior Economist, Washington, DC (Middle East, Africa) IHS Banking Service Risk Years of historically loose monetary policy globally seem to have caught up with emerging markets as Nigeria, South Africa, Turkey, and India tightened monetary policy in January, with important implications for their respective banking sectors. Meanwhile, China regulators are working to prevent a systemic crisis from emerging out of growing risks in that sector's shadow banking sector, even as regulators in Kazakhstan and Hungary try to regain sound footing after their own crises several years ago. Key Points: Asia Pacific  China – Tackling of shadow banking activities, including regulatory framework for reducing shadow banking risk.  Vietnam – Approval of bankruptcy law yet another small step towards accelerating restructuring process in country's still vulnerable banking sector.  India – Interim dividend payments by the country's public-sector banks expected to emerge ahead of the country's general elections in May.  Thailand – Potential downgrade of IHS Banking Risk Rating; temporary closure of bank branches possible with ongoing political protests.
  • 2. Eastern Europe  Kazakhstan – Kazkommertsbank's completion of BTA Bank acquisition; Alliance Bank and creditors negotiating debt-restructure.  Turkey – Central Bank of the Republic of Turkey (CBRT) to hike policy interest rates drastically will be tested in the coming weeks.  Hungary – Expectation continues as the government awaits another court ruling regarding the legality of foreign exchange loan contracts. Latin America  Ecuador – Ecuador likely to unveil more details on new banking regulation geared towards giving the government greater control over the banking system.  Brazil – Brazil's Supreme Federal Court is set to rule on a major lawsuit involving the government-mandated freezing of savings deposits and reduction of returns. Middle East & Africa  UAE – New prudential regulations targeting so-called "off-plan" transactions  South Africa – New consumer debt regulations as early as this quarter.  Nigeria – Interbank market fluctuations and profitability trends are increasingly likely.  Zimbabwe – Liquidity strains and capital shortages at Zimbabwean banks. Asia Pacific China – Focus will remain on shadow banking activities, including regulatory framework for tackling shadow banking risk | Contact: Ruta Cereskeviciute, Senior Economist, Singapore: Ruta.Cereskeviciute@ihs.com “Revelation of new details, including whether private investors will have to take partial losses, may trigger volatility in the inter-bank market, potentially leading to yet another liquidity squeeze. Meanwhile, the China Banking Regulatory Commission (CBRC) may move ahead in announcing the creation of a special fund to be used to provide liquidity assistance to small and medium-sized banks.” “Further details are expected to be issued in the near term on new inter-bank regulations that may limit each commercial bank's lending to other financial institutions to no more than 50% of its deposit base. These are to be part of a new regulatory framework prepared by China's State Council in early January that aims
  • 3. to limit banks' off-balance-sheet lending and to improve oversight of non-bank financial institutions.” “The trust industry might face the strongest tightening of activities in the near term with the cabinet calling for it not to engage in any "credit-type" businesses. At a regional level, CBRC offices in local municipalities will be increasing scrutiny of credit risk in the coal and mining industry, along with greater monitoring of other shadow financial flows, as ordered by the CBRC in January.” __ Vietnam – Approval of bankruptcy law will be yet another small step towards accelerating restructuring process in country's still vulnerable banking sector | Contact: Ruta Cereskeviciute, Senior Economist, Singapore: Ruta.Cereskeviciute@ihs.com “Further details on a possible bank bankruptcy law in Vietnam may be released in February, after the country's National Assembly Standing Committee proposed it in January. If approved, the legislation will be yet another small step towards accelerating the weak restructuring process in the country's still vulnerable banking sector.” __ India – Interim dividend payments by the country's public-sector banks expected to emerge ahead of the country's general elections in May | Contact: Ruta Cereskeviciute, Senior Economist, Singapore: Ruta.Cereskeviciute@ihs.com “Following a request by India's Finance Ministry, more details will emerge on the size of interim dividends to be paid by all public-sector banks, which account for about 75% of total banking sector assets, by the end of the current fiscal year in March.” “The policy is designed to ease fiscal pressures ahead of the country's general election due by May, but stands at odds with an annual exercise of capital injections to this group of banks from the state budget, also to be executed by the end of March.” __ Thailand – Potential downgrade of IHS Banking Risk Rating for the country; temporary closure of bank branches possible with ongoing political protests |
  • 4. Contact: Ruta Cereskeviciute, Senior Economist, Singapore: Ruta.Cereskeviciute@ihs.com “Ongoing political protests in Thailand may lead to further disruption in banking sector activities, in terms of likely further temporary closures of bank branches and operational difficulties for the central bank and the Stock Exchange of Thailand.” “As pressure on the domestic economy mounts, the credit risk profile of the country's banking system is set to weaken further, potentially triggering a downgrade of our banking risk rating in the near term, as signaled by the Negative outlook the rating is already carrying.” Eastern Europe Kazakhstan – Kazkommertsbank's completion of BTA Bank acquisition; Alliance Bank and creditors negotiating debt-restructure | Contact: Ruta Cereskeviciute, Senior Economist, Singapore: Ruta.Cereskeviciute@ihs.com “Kazakhstan's Kazkommertsbank (KKB) is in the final stage of negotiations to acquire the state's majority stake in BTA Bank and is expected to finalize the deal within weeks, after signing a preliminary agreement with National Welfare Fund Samruk-Kazyna in late December.” “Samruk-Kazyna is, under presidential decree, looking to sell its majority stake in the country's largest, chronically distressed lender. The imminent deal, which is expected to see KKB's pension fund go the other way, is of major significance to the banking sector as it predicts the merger of the largest and third-largest Kazakh banks by assets. This envisaged operation will result in a giant lender accounting for more than one-fourth of total sector assets and, perhaps more importantly, more than 60% of total sector NPLs.” “In the meantime, Alliance Bank, one of the other two Kazakh banks requiring a state bailout a few years ago, brought forward a recapitalization plan that includes a proposed restructuring of 127.3 billion Tenge (USD818 million) worth of debt with haircuts to creditors ranging between 65% and 90%.” __
  • 5. Turkey – Central Bank of the Republic of Turkey (CBRT) to hike policy interest rates drastically will be tested in the coming weeks | Contact: Alyssa Grzelak, Senior Economist Alyssa.Grzelak@ihs.com “The decision by the Central Bank of the Republic of Turkey (CBRT) to hike policy interest rates drastically will be tested in the coming weeks. Initial market reaction was mixed, with the lira withstanding sharp volatility and ending January with no clear direction. The hike is expected to have implications for the real economy, namely by raising borrowing costs.” “While data reflecting a potential negative shock to the banking sector will lag for some time, the next few months will bear close monitoring for any visible signs of distress among banks, and initially among household and corporate borrowers. The political spat affecting Turkey is also expected to drag on in the coming months and potentially intensify as local and national elections draw nearer.” __ Hungary – Expectation continues as the government awaits another court ruling regarding the legality of foreign exchange loan contracts | Contact: Antonio Timoner-Salva, Senior Economist, Antonio.TimonerSalva@ihs.com “The expectation continues as the government awaits another court ruling regarding the legality of foreign exchange loan contracts. The Hungarian top court is itself waiting for a ruling by the European Court of Justice that is expected to be released in February.” “With the verdicts by the European and Hungarian courts in hand, the government is likely to finalise and announce a new scheme to support foreign exchange household borrowers, which would translate into further government-imposed losses on the banking industry.” Latin America Ecuador – Ecuador likely to unveil more details on new banking regulation geared towards giving the government greater control over the banking system | Contact: Antonio Timoner-Salva, Senior Economist, Antonio.TimonerSalva@ihs.com
  • 6. “Ecuador is likely to unveil more details on new banking regulation geared towards giving the government greater control over the banking system with the aim of supporting populist economic policies. Early in January, President Rafael Correa indicated that he plans to bring the new law to the National Assembly within the next two months.” __ Brazil – Brazil's Supreme Federal Court is set to rule on a major lawsuit involving the government-mandated freezing of savings deposits and reduction of returns | Contact: Antonio Timoner-Salva, Senior Economist, Antonio.TimonerSalva@ihs.com “Brazil's Supreme Federal Court is set to rule in February on a major lawsuit involving the government-mandated freezing of savings deposits and reduction of returns as part of its efforts to stem hyperinflation from 1986 to 1994. After years of court battles, depositors could claim compensation from the country's top banks, totaling 150 billion reais (USD65 billion), according to central bank estimates.” “While a ruling favouring depositors' demands would deal a severe blow to the banking system (the estimated compensation amounts to nearly one-fourth of the banking industry's shareholders' equity), both authorities and the banking industry are confident that the court decision will dismiss most of the claims, likely offering small collective compensation.” Middle East & Africa UAE – New prudential regulations targeting so-called "off-plan" transactions | Contact: Alyssa Grzelak, Senior Economist Alyssa.Grzelak@ihs.com “New prudential regulations targeting so-called "off-plan" transactions, aimed at preventing a new bubble from forming in the local real estate market, could be one of several regulatory enhancements announced in the near term. Additionally, the central bank announced that it plans to establish the country's first credit reference bureau during the first quarter in a move to improve risk-management capacity at local banks.” “Having now named a team of international accountants and consultants to audit Tunisia's three troubled state-owned banks, additional information on the timing
  • 7. and scope of the bailout required could be revealed in the near term, with the audits expected to be completed this year. Current recapitalisation estimates suggest USD1.1 billion could be needed.” __ South Africa – New consumer debt regulations as early as this quarter| Contact: Alyssa Grzelak, Senior Economist, Washington, DC, Alyssa.Grzelak@ihs.com “South African authorities could finalise at least part of proposed regulations aimed at containing risks associated with high household indebtedness as early as this quarter, after draft goals were released in mid-December. Rules limiting the use of garnishee orders to recover unpaid debts will likely be the first of several announced measures to be enacted.” “Other measures to be finalised in the near term include setting clear affordability criteria for retail lenders, reviewing the pricing caps under the National Credit Act, and strengthening monitoring of predatory lenders in the shadow banking sector.” __ Nigeria – Interbank market fluctuations and profitability trends are increasingly likely | Contact: Alyssa Grzelak, Senior Economist, Washington, DC, Alyssa.Grzelak@ihs.com “Following a significant increase in the cash reserve requirement on government deposits in January, inter-bank borrowing costs in Nigeria are likely to surge in the near term as local banks scramble to mobilise private-sector deposits.” __ Zimbabwe – Liquidity strains and capital shortages at Zimbabwean banks| Contact: Alyssa Grzelak, Senior Economist, Washington, DC, Alyssa.Grzelak@ihs.com “A confidential Reserve Bank of Zimbabwe document leaked to reporters in January indicated that 7 of the sector's 21 licensed banks are "facing challenges" and are under "close central bank monitoring". This leaked document, a surge in NPLs, looming higher capital requirements, and a run on deposits late in 2013 at three small lenders suggests that the closure of several banks in the near term is likely.” -0-
  • 8. Danny Cheung Asia Pacific, Media Relations Asia Square Tower 1 8 Marina View, Singapore 018960 www.ihs.com Desk: +65 6439 6192 Mobile: +65 9171 3200 Fax: +65 6439 6001 danny.cheung@ihs.com  Please consider the environment before printing this e-mail. This email message is for the sole use of the intended recipient(s) and may contain confidential and privileged information. Any unauthorized review, use, disclosure or distribution is prohibited. If you are not the intended recipient, please contact the sender by reply e-mail and destroy all copies of the original message. Thank you.