Fitch’s downgrades of financial institutions speed up in 3Q22

Oksana Patron

28 October 2022

Credit ratings consultancy, Fitch Ratings, has revealed that downgrades of financial institutions ratings accelerated in 3Q22 due to deteriorating global economic conditions and emerging-market sovereign downgrades, and are likely to continue in the coming quarters as the effects of high inflation and a possible recession in developed markets.

About 60% of the rating changes for financial institutions were triggered by sovereign rating actions, with Turkey’s downgrade to ‘B’/negative from ‘B+’/negative in July having driven two-thirds of the negative actions, whilst Brazil’s outlook stabilisation explained about 30% of the positive actions, according to Fitch’ report.

On the other hand, non-sovereign-driven negative actions included the downgrades of two Polish banks and followed the government’s introduction of payment holidays on local-currency residential mortgages, which imposed large costs on banks.

“We also downgraded two Mexican non-bank financial institutions (NBFIs) due to refinancing risk as investor appetite for Mexican NBFI debt weakened. Valuation declines and elevated leverage led to negative actions on two traditional investment managers, while the potential downturn in the US residential and commercial real-estate markets led us to lower the outlooks on three US title insurers to stable from positive,” the report said.

During the quarter, all the downgrades accounted for 14% of the 366 rating actions on global financial institutions and significantly outnumbered upgrades (less than 5%).

However, positive and negative actions overall were more balanced (15% and 14%, respectively) as the number of positive actions was boosted by upward outlook revisions, with about 70% of rating actions having led to unchanged ratings and outlooks.