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Our banking risk experts provide insight into events impacting
the financial sector in emerging markets in April.
Higher micro, small, and medium-sized enterprise (MSME) lending
in mainland China owing to loan-moratorium extension
Capital support via injections for state-owned banks in
Bangladesh
Interest-rate policy decisions at Turkey's next monetary policy
meeting
Nicaragua's implementation of consumer law affecting
bank-depositor relationships
Credit growth deceleration across North Africa
Release of fourth-quarter 2020 loan growth in several
Sub-Saharan Africa economies
Continued push to lend to MSMEs in China (mainland)
likely following moratorium extension.
The extension of the loan moratorium and the continued crackdown
on illegal real estate loans will likely direct more lending to
micro, small, and medium-sized enterprises. MSME loans this year
will likely be slower than 2020 but will likely be higher than the
30% MSME loan target set for large banks this year.
Bangladeshi banks will likely receive capital support
from the government soon.
Although recent announcements suggest the authorities are not
inclined to inject capital into state-owned banks, faced with
worsening asset quality and a reduction in loan repayments because
of the loan-moratorium extension affecting the ability to use
retained profit for capital rebuild, it is increasingly likely that
the authorities will have to inject capital into state-owned banks
to allow them to meet the capital floor.
All eyes on Turkey's next monetary policy meeting on 15
April amidst key roll-over period for syndicated bank
loans.
IHS Markit tentatively expects the central bank to maintain
existing interest rates at its April meeting given the important
spring roll-over period on Turkish bank loans. Roughly 80% of
banks' annual syndicated loans roll over in April-May. Should the
central bank begin cutting rates in April, market instability would
increase and net capital outflows could be significant, undermining
the roll-over period and further weighing on profits. Although IHS
Markit estimates that banks have enough liquid assets on hand to
repay maturing liabilities, a sudden freezing-up of wholesale
markets would yield a significant tightening of liquidity
conditions, undermining credit growth and reducing the central
bank's own reported reserve holdings. With real rates just barely
positive, even a hold is likely to yield a more accelerated
depreciation of the lira in the second quarter, increasing
debt-servicing costs on the 34% of loans denominated in foreign
currency.
Nicaragua's implementation of consumer law affecting
bank-depositor relationships.
During February 2021, the National Assembly of Nicaragua hastily
approved an amendment to a consumer protection law forbidding banks
to unilaterally break relationships with their clients except in
cases where they are "breaking the law". Under most interpretations
of the new act, banks would not be able to end relationships with
internationally sanctioned individuals in Nicaragua, therefore
increasing the likelihood of the sector being subject to
international sanctions. This would increase the likelihood of the
sector suffering the curtailment of its correspondent
relationships. However, Nicaraguan banks still have an opportunity
to avoid this risk through clarification by the banking regulator
regarding what the law is; we expect that the regulator will state
its interpretation of the issue by the end of April.
Credit growth slowdown in North Africa.
Across the North African region, pre-existing forbearance
measures were compounded by COVID-19-related stimulus measures to
provide overwhelming support for credit growth throughout 2020.
However, several stimulus measures will be expired by end-March
2021, including loan moratoria in Algeria, Egypt, and Morocco. As a
result, we expect credit growth deceleration across the region in
April. Additionally, the expiration of forbearance measures and the
slowdown in credit growth are likely to drive an uptick in NPLs in
North Africa throughout the remainder of 2021.
Fourth-quarter 2020 data revealing the extent of the
impact of the COVID-19 pandemic on loan growth in several
Sub-Saharan Africa countries.
Several banking sectors in the region (including in Angola,
Ghana, Kenya, South Africa, and Uganda) have tightened their
lending criteria to the private sector because of the high
incidence of payment defaults and instead increased their exposure
to the sovereign. Central banks in the region provided a set of
relief measures to cushion banks and borrowers and stimulate loan
growth. The data release for December 2020 expected in April for
several countries will likely clarify the actual success of these
support measures and reveal the overall impact that COVID-19 had on
loan growth in 2020.
Posted 07 April 2021 by Natasha McSwiggan, Senior Economist, Banking Risk, IHS Markit
