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Our banking risk experts provide insight into events impacting
the financial sector in emerging markets in September.
The lowering of the reserve requirement ratio in mainland China
likely aiding broad-based credit growth
A combination of loan interest-rate ceilings and deposit floors
in Bangladesh likely disincentivizing banks from boosting lending
because of lower profit margins
Russia's expected monetary tightening and effects of
pre-election social payments on the deposit growth rate
Updates in El Salvador detailing cryptocurrency regulation for
the financial sector
Developments regarding Zambia's new government's International
Monetary Fund negotiations to improve debt sustainability
Fast credit growth is likely to return in mainland
China.
The lowering of the reserve requirement ratio (RRR) in mainland
China - which was not targeted to boost micro, small, and
medium-sized enterprises (MSME) lending - will likely result in
broad-based credit growth in the coming quarter. Although the RRR
was not targeted, the MSME loan target and ongoing scrutiny on real
estate sector loans will likely support a concentration of loans in
the household and MSME segments. IHS Markit maintains the view that
more regulatory controls will be likely for the real estate sector,
on both the development and mortgage fronts.
Potential slowdown in Bangladesh credit growth because
of profitability concerns.
A combination of loan interest-rate ceilings and deposit floors
will likely disincentivize banks to boost lending because of lower
profit margins; at the same time, boosting lending with minimum
profit margins will likely reduce banks' ability to retain profits
to rebuild capital, especially in the absence of government capital
injection for state-owned banks.
The expected policy rate rise in September and the
pre-election social payments giving a boost for Russia's deposit
growth in the near term.
The Central Bank of Russia maintains hawkish forward guidance
and another rate rise is very likely in September. The decisive
monetary tightening will help banks adjust their rates and is
expected to encourage bank deposits. Furthermore, President
Vladimir Putin announced one-off payments for pensioners and
military personnel ahead of the elections next month, amounting to
RUB500 billion (USD6.75 billion), which will also contribute to
deposit growth.
Regulators in El Salvador detailing cryptocurrency
regulations for the financial sector.
Following President Nayib Bukele's announcement that Bitcoin has
been established as the country's second currency, companies have
been seeking clarification on how this will affect business
activity. In late August, the president also revealed that people
would not be bound to accept this currency in their business
transactions and the central bank issued a regulation on the
matter. Moreover, banks stated that despite the two-currency system
they would still maintain their accounting in dollars. However,
greater details are needed for the banking sector to be prepared
before the launching of the dual system on 7 September. We expect
that the financial superintendence will provide greater details
before this deadline.
Zambia's new government seeking to fast-track IMF
negotiations to improve debt sustainability, which will likely
lessen pressure on commercial banks to take on additional
government debt.
An immediate goal of the new United Party for National
Development government, which came to power in August 2021, is to
finalize ongoing IMF and debt-restructuring negotiations, which
during the previous government's tenure were hindered by a lack of
transparency on state commitments to mainland Chinese lenders
regarding loans to state-owned entities. Provision of full details
of what is owed would make an IMF deal considerably more likely
within six months. Access to the IMF credit facility and possible
debt restructuring will likely improve debt sustainability and
lessen pressure on commercial banks to take on additional
government debt. This is likely to encourage private-sector lending
and boost overall loan growth. We will therefore monitor the
outcome of the IMF negotiations over the next month. However, the
subsequent impact on public debt and sovereign debt holdings within
banks, as well as a possible sovereign risk change, will only show
up in the figures towards the middle of next year.
Posted 08 September 2021 by Natasha McSwiggan, Senior Economist, Banking Risk, IHS Markit
