SINGAPORE (S&P Global Ratings) March 21—While the improving global economy will help banks in the BRICS countries, S&P Global Ratings addresses the main risks confronting the lenders in the recently published report, titled "Will The Global Economic Recovery Lift Banks In Major Emerging Markets?."
"Political risk stands out as a chief concern," said S&P credit analyst Cynthia Cohen-Freue. High-level corruption scandals, policy uncertainty amid upcoming elections, weak checks and balances, and issues over fiscal transparency and management could weaken business conditions for banks, and ultimately, investor confidence.
Indian banks' NPLs will rise in 2018 as lenders improve recognition of weak assets in line with the central bank's instructions while China continues to tackle economic imbalances, given the sharp growth in private-sector debt and property prices in the past years.
Turkish banks could face asset quality pressure if the economy slows down and/or if the lira sees sustained sharp depreciation.
Conversely, South African banks' asset quality looks solid, although the persistent concerns regarding high household leverage and strained affordability remain.
"Nevertheless, our outlook on most of the largest rated banks in the BRICS countries is stable. This reflects our view that their current ratings already capture these headwinds, while brighter economic prospects will support banks' operating performance. Our outlooks on the six rated Turkish banks are negative, mirroring our negative outlook on Turkey as well as negative banking industry trends," the S & P said.
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