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An abrupt halt to corporate lending in mainland China
Capital injection into state-owned banks in India and enhanced
privatisation effort for standalone state-owned banks
Adoption of banking sector-wide settlement to convert Swiss
franc loans into zloty-denominated loans in Poland
First de-facto notions of real impairment and other
asset-quality indicators across Latin America
Delay to the central bank of Lebanon's end-February
capital-raising deadline
Loan growth in Kenya likely to decelerate further in the near
term amidst rising impairments
Cautious lending to the corporate sector in mainland
China following defaults.
Recent corporate bond defaults in state-owned companies have
caused some risk aversion in the financial sector; some of this
will likely be diverted to lending to micro, small, and
medium-sized enterprises (MSMEs). However, considering bond
investments by banks are nearly 20% of banking sector assets, an
abrupt stop of support to corporates is unlikely.
India's budget likely to announce a new plan to inject
capital into state-owned banks.
The Indian state budget in early February will likely be
accompanied by capital injection announcements. The capital
injection will likely focus on state-owned banks that have merged
into a new banking group and not standalone state-owned banks,
which will likely see them being privatised under a new
privatisation timetable.
Swiss franc loan-conversion settlement in
Poland.
Poland will likely adopt a banking sector-wide settlement to
convert Swiss franc loans into zloty-denominated loans. Large
lenders mBank and ING Slaski already made record provisions in the
fourth quarter of 2020 to cover risks of foreign currency
mortgages, which will likely prompt other Polish banks to boost
their own provisions this quarter. Although the conversion of
foreign currency loans would significantly diminish short-term
profits by forcing banks to take large one-time losses, it would
reduce legal uncertainties and on-balance sheet currency mismatches
in the long term.
First de-facto notions of real impairment and other
asset-quality indicators across Latin America.
A large proportion of credit outstanding has benefited from
forbearance measures that allowed loans to be categorised and
treated as still performing in banks' accounts, despite payments
being past due. These measures have masked asset-quality figures,
in our view. So far, we have a notion of the impact given the
amount of loans included under this kind of measure; however, the
real level of impairment is still to be determined from the amounts
of loans that restart paying their debts. Given that in some
economies these measures have started to be retracted, the data
releases for the end of 2020 and the first statements by banks will
start to give us a notion of some sectors' real level of impairment
and other asset-quality indicators.
Delay of the Lebanese central bank's end-February
capital-raising deadline.
In August 2020, the Lebanese central bank (Banque du Liban: BDL)
announced banks must raise capital by 20% by end-February or their
shares will be taken over by the regulator. As the deadline looms,
large banks have sold foreign subsidiaries and moved to consolidate
business lines to raise capital. Nonetheless, sector-level
shareholders' equity increased by just 1.3% between end-August and
end-November 2020 (when last reported). IHS Markit anticipates the
BDL will push back the deadline, allowing large banks that have
already taken steps towards meeting the requirement to raise
additional capital. Ultimately, smaller banks may be taken over by
the BDL and combined to form a "bad" bank.
Credit growth in Kenya likely to decelerate
furtherin the near term amidst rising
impairments.
Quarter-on quarter lending growth decelerated from 2.1% in the
second quarter to 1.1% in the third quarter in view of increasing
defaults. The sector's NPL ratio increased from 12.7% in March 2020
to 14.1% at end-2020, likely to keep banks cautious towards lending
to the private sector.
Posted 04 February 2021 by Natasha McSwiggan, Senior Economist, Banking Risk, S&P Global Market Intelligence