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Our banking risk experts provide insight into events impacting
the financial sector in emerging markets in April.
Faster mortgage loan growth will continue in mainland China,
supported by policy relaxation.
More non-performing loans (NPLs) will be sent to India's bad
bank for resolution.
Roll-over ratios on external debt in Turkey will be watched
closely for spill-over effects from the Russia-Ukraine
conflict.
Deterioration of banks' expectations on key indicators because
of the weakening economic environment in Latin America.
Lebanon is getting closer to passing a capital control law,
awaiting final approval from Parliament.
Developments regarding Zambia's creditors committee to improve
debt sustainability.
Return of faster mortgage loan growth in mainland
China.
The support for large and strong real estate companies to
borrow, in order to purchase projects from weaker real estate firms
since the start of 2022, will likely continue. However, the main
focus of the central government and financial regulator will
continue to be maintaining stability of the financial system. As
such, more support for individual borrowers is likely, with banks
being encouraged to increase mortgage lending growth through
expansive monetary policy, such as the medium-term loan prime rate
cut in the first quarter.
More bad loan accounts to be sent to India's "bad
bank".
By the end of March 2022, banks are likely to have transferred
INR503.4 billion worth of bad loans (around 0.5% of total loans) to
the National Asset Reconstruction Company (NARCL). The next batch
of bad loans, worth INR320 billion, is scheduled to be transferred
during fiscal year 2022/23 (March 2022 to March 2023). We expect
that more bad loans will be transferred to the NARCL considering
that the downstream operations of the bad bank are quickly taking
shape, allowing it to resolve more bad loans.
Roll-over ratios on external debt in Turkey watched
closely for spill-over effects from Russia-Ukraine
conflict.
Turkey, along with much of emerging Europe, is going to be
negatively affected economically by the Russia-Ukraine conflict via
lower growth and a higher external imbalance that will put pressure
on Turkey's sovereign position and currency. Higher oil prices,
lost agricultural exports to both Russia and Ukraine, and the lack
of a bounce back in tourism revenue will weigh on economic growth
this year. This is likely to put upward pressure on banks' NPLs and
could yield slightly lower roll-over ratios on foreign debt, but
overall we expect investors to differentiate between Turkey's
well-established structural vulnerabilities and the unique
circumstances surrounding Russia's external debt
vulnerabilities.
Deterioration of banks' expectations on profitability,
credit growth, and asset quality because of the weakening economic
environment in Latin America.
With lower economic expectations in most Latin American
countries, banks already perceive increased weaknesses in their
respective markets. Chile, for instance, has revealed that lending
standards tightened and credit demand declined significantly
through the first quarter of 2022, particularly in the corporate
segment. So far, Russia's invasion of Ukraine has not affected
these sectors to a significant degree. However, persistent global
uncertainty will induce changes in banks' actions through the
course of 2022. Data releases for the first quarter of 2022 will
further reveal the outlook on profitability, credit growth, and
asset quality for the whole region.
Lebanon getting closer to passing a capital control law,
awaiting final approval from Parliament.
Since mid-March, the standoff between banks and judiciary
authorities has escalated after a series of judicial rulings that
resulted in the freezing of assets at some banks and forcing others
to repay non-resident depositors further hampered the Lebanese
banking sector's daily operations. The banking sector is demanding
Parliament formally adopt a capital control law, which essentially
puts exceptional and temporary restrictions on bank transfers and
cash withdrawals for three years to protect the banking sector's
liquidity. The draft capital control law is currently being debated
and was formally endorsed by the Cabinet on 30 March. We expect
meaningful progress to be achieved on the capital control law in
April, ahead of the elections in May.
Zambia's official creditors expected to
form committee to determine amount of debt relief to be provided;
likely will take pressure off commercial banks to take on
additional government debt.
The committee is expected to advise the exact amount to be
provided as debt relief at the end of April 2022, a necessary step
to pave the way for Zambia to conclude a much-needed International
Monetary Fund (IMF) deal. Access to the IMF credit facility and
possible debt restructuring will likely improve Zambia's debt
sustainability and lessen pressure on commercial banks to take on
additional government debt, which crowds out private-sector
lending. Year-on-year loan growth is expected to decelerate to 8.2%
in 2022, compared with year-on-year loan growth of 20.9% in 2020.
At the end of 2021, Zambian banks held about 26.3% of total assets
as sovereign debt holdings, up from 23.2% in the same period in
2020.
Posted 06 April 2022 by Natasha McSwiggan, Senior Economist, Banking Risk, IHS Markit
This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.