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Further relaxation of residential mortgage loans to key cities
in mainland China
Lack of state capital injections into banks to drive
privatization efforts in India
Macroprudential policy tightening in Emerging Europe owing to
residential real estate-related vulnerabilities
Debate on bill that would change liquidation processes in
Panama
The gradual phasing out of COVID-19 support measures in Gulf
states
Release of fourth-quarter 2021 data to reveal the status of
asset quality in Uganda, following the expiration of forbearance
measures
Further relaxation of residential mortgage loans in key
cities of Mainland China.
Mainland Chinese authorities are likely to extend the
mortgage-loan relaxation to other key cities after doing so for
Guangzhou. The cut in the medium-term loan prime rate signals an
easing of loan conditions, and it is highly likely that the easing
will be widespread and will be focused on low-risk borrowers such
as homebuyers rather than investors.
Lack of state capital injection into Indian banks
likely to drive privatization efforts.
The Indian government has announced through its budget for
fiscal year (FY) 2022/23 that it will not be injecting any capital
into state-owned banks. Instead, it is looking to start an IPO of
Life Insurance Company of India; this indicates the state-owned
insurance company - which also holds stakes in many state-owned
banks - will be partially privatized. The lack of capital
injections this year suggests that the privatization of several
state-owned banks will be completed in FY 2022/23.
At the end of 2021, Bangladesh authorities had
shown willingness to relax the minimum loan-repayment requirement
for a loan to be classified as normal; this policy will likely
continue into 2022. Although the regulators may show resilience and
a strong stance towards better loan classification, in the
beginning, our experts expect these will once again relax. We
expect the non-performing loan (NPL) ratio to remain around 8.3%
for 2022.
Tighter macroprudential policy across Emerging
Europe.
Banking sectors in Europe are exposed to various residential
real estate-related vulnerabilities, including strong mortgage
lending, elevated house price growth, house price overvaluation,
high indebtedness, and signs of loosening credit standards.
Authorities have already started to take action to address
residential real estate-related vulnerabilities via policy
tightening; Bulgaria, Croatia, Czechia, and Romania have indicated
increases in countercyclical capital buffer (CCyB) rates between
2022 and 2023 in an effort to slow mortgage lending rates. Other
borrower-based measures or targeted capital-based instruments such
as a systemic risk buffer are likely to be activated or tightened
by European authorities as a preventive action.
Debate on bill that would change liquidation processes
in Panama.
We expect further developments on bill 165, which is currently
being discussed in the National Assembly of Panama. The bill
intends to modify the terms in which liquidations are performed in
the country. The current draft of the law would require banks to
use the market value (rather than the auction value) for goods
given as collateral in loans. Additionally, it would require banks
to give the difference between the value of the good and the
outstanding balance of the borrower. In turn, if this law is passed
under current conditions, it could diminish the capacity of
Panamanian banks to disburse loans given higher risk of losses
despite the existence of collateral. It would also affect
profitability over the short and medium terms because of limited
capacity of recovering loan losses and a likely increased reliance
on provisioning.
Gulf states continuing to gradually phase out COVID-19
support measures in the coming months.
Gulf states are likely to phase out remaining COVID-19 support
measures at a faster pace given the boost these economies are
receiving from higher oil prices and the relative stability of
financial soundness indicators during the pandemic. Saudi Arabia is
unlikely to further extend its loan-payment moratorium, currently
set to expire at the end of March, in our view, as NPLs remain very
low. Oman and Qatar previously extended some loan-payment
moratoriums to December 2022 and 2023, respectively, while
moratoriums in Kuwait and the United Arab Emirates have already
expired. We expect Kuwait to announce a phased rollback of its
remaining capital conservation buffer and risk weight forbearance.
In the UAE, forbearance on banks' capital buffers, liquidity, and
stable funding requirements, set to expire in June, are also likely
to be phased out, but more gradually in light of that sector's much
higher NPL ratio and slower credit growth. In anticipation of
further rollback of forbearance, we expect banks will continue
raising extra capital and provisions to enhance capital buffers and
absorb potential loan losses.
Release of fourth-quarter 2021 data to reveal status of
asset quality in Uganda, following expiration of forbearance
measures.
Uganda is expected to release its December 2021 Financial
Stability Review, likely to reveal the first impact on asset
quality following the end of forbearance measures in September
2021. Thus far, asset-quality risks have been contained through
forbearance measures, reflected by the sector's NPL ratio, which
stood at 5.4%, the same level as in the beginning of the pandemic.
IHS Markit analysts project the NPL ratio will start to increase
gradually in 2022, as some of the restructured loans materialize
into NPLs, negatively affecting loan growth. IHS Markit is
forecasting year-on-year loan growth of 5.4% and 6.6% for 2021 and
2022, respectively, for Uganda, versus year-on-year loan growth of
15.4% in 2020.
Posted 04 March 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.