Banking Risk Monthly Outlook: September 2022

Our banking risk experts provide insight into the events that will impact the emerging markets financial sector in September.

  • China’s easing of monetary policy is unlikely to lead to a quick risk in mortgage lending due to a potential loss of confidence in the property market
  • Turkish banks expected to see higher costs and lower refinancing ratios when discounting syndicated loans in the fall
  • Rise in non-performing loan (NPL) ratios in some South American economies as inflation and interest rates continue to rise
  • North African banks are expected to continue buying sovereign debt as they tapped into the domestic debt market to fill government deficits over the past year
  • Release of second quarter 2022 data to reveal the state of asset quality in Nigeria, after the expiry of the forbearance measure in March 2022

More stimulus in China likely to increase lending, but not necessarily in the real estate sector.

The fallout between landlords and property developers showed no signs of abating in August. In response, the central bank lowered its key rates in August. The People’s Bank of China (PBoC) cut the one-year Medium-Term Lending Facility (MLF) rate by 10 basis points to 2.75%, leading to a drop in the one-year lending prime rate. year and five years (LPR) of 5 bps and 15 bps respectively at 3.65% and 4.3%. Due to the medium-term nature of this latest rate, it appears to be targeting the mortgage sector. However, IHS Markit believes that since most new-build discounts are given to cash buyers, the impact of rate cuts will likely depend on the rebound in public confidence in the housing market and not necessarily lead to a higher mortgage growth. In fact, mortgage growth is still in sharp contraction and while the market may bottom in the second half of 2022, a V-shaped recovery is unlikely.

Turkish banks are expected to see higher costs and lower refinancing ratios when discounting syndicated loans in the fall.

September/October is the second most important rollover period for Turkish banks’ annual syndicated loans. Investor confidence has been shaken by Turkey’s unconventional monetary policy stance, reflected in recent sovereign debt downgrades by major rating agencies that downgraded banks’ ratings individuals in speculative territory. According to our calculations, banks have more than enough liquid foreign currency assets ($84.5 billion) to repay maturing foreign debts ($83 billion due over the next year), even in a unexpected extreme scenario where none of them are rolled over, but low refinancing ratios would limit the growth of new loans at a time when banks are pressured to lend to support economic growth.

Syndicated loans from Turkish banks

Rise in non-performing loan ratios as inflation and interest rates continue to rise in some South American countries.

Rapid levels of inflation combined with rising interest rates in the region have slowly started to push up NPL ratios across most of the region. Countries such as Bolivia, Chile, Paraguay and Uruguay saw their PNP ratio increase by 0.1 to 0.5 percentage points (representing an increase of 7% for Chile and 23% for India). Uruguay) in June 2022 compared to March 2022. Going forward, we expect this trend to continue in these sectors, with other economies likely to experience the same effects, with an average increase of 30% in their NPL ratios at the end of 2022, compared to 2023, with Bolivia and Paraguay registering the largest increases.

South American Non-Performing Loans

North African banks are expected to continue buying sovereign debt as they tapped into the domestic debt market to fill government deficits over the past year.

The budget deficit in 2022 is projected at 8.7%, 6.7% and 2.2% of GDP for Tunisia, Egypt and Algeria respectively. In 2021, local authorities aggressively tapped the domestic debt market to fill the fiscal gap, particularly after external financing conditions became tight and slowed progress in negotiations with the International Monetary Fund (IMF) due to various austerity measures required. IHS Markit expects banks to accelerate sovereign debt buying, although banks’ outstanding sovereign debt to total assets already exceeds 30% for Egypt and Algeria, increasing links between banks and sovereigns.

Release of Q2 2022 data to reveal the state of asset quality in Nigeria, following the expiration of the forbearance measure in March 2022.

Nigeria is set to release Financial Soundness Indicators for the banking sector for June 2022, which will reveal the initial impact on asset quality after forbearance measures end in late March 2022. IHS Markit experts predict continued recovery of economic growth in Nigeria for 2022 which should strengthen the debt service capacity of borrowers, due to the increase in oil prices which will support broad-based growth in the oil and non-oil sectors. Stage 2 loans are quite high, suggesting that there is still significant risk on banks’ balance sheets. IHS Markit analysts predict that the NPL ratio will begin to gradually increase to 5.6% by the end of 2022, from 5.3% in March, as some of the restructured loans materialize into NPLs.

Nigeria abstained in the second quarter



Posted on September 08, 2022 by Natasha McSwigganSenior Economist, Banking Risk, S&P Global Market Intelligence


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.

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