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Global financial system in rude health in 2006: report

Written by: Staff

Singapore, June 7 (UNI) Risk charges for loan losses are low for global banking groups like Citigroup and HSBC and small banks in the US or Ukraine, while profits are high and business flows robust, a report said today.

According to the Standard&Poor's Ratings Services new report 'Banking Industry Country Risk: These Are The Good Old Days', the global financial system is in rude health in 2006, and the booming household sector, defying expectations of a slowdown, continues to generate heady profits.

Good corporate earnings, relative monetary stability, and healthy growth in the global economy -- particularly in Asia and emerging markets -- have boosted global bank performance over the past few years, the report said.

''The deepening use of advanced risk management techniques -- notably statistical portfolio management, securitisation, hedging with credit derivatives, and sale of problem loans -- has led to a greater dispersal of credit risk,'' Standard&Poor's credit analyst Scott Bugie said.

Consolidation and globalisation have spread best practices and created more diversified banking groups less vulnerable to a downturn in a single country or economic sector, the rating agency pointed out.

The result is that for most countries, the banking industry country risk has improved since the beginning of the decade, and rating upgrades have outnumbered downgrades in the global financial sector since 2003, the report highlighted.

The pace of improvement in the creditworthiness of emerging market banks is particularly notable. The past few years through to the present is looking more and more like a golden age in global banking. ''This view holds despite our projection that the credit cycle will turn in North America and Europe and the rate of corporate defaults will increase over the next two years,'' he said and added that ''Over the medium term, a sudden marked rise in interest rates could end the trend of improving bank performance and creditworthiness.'' However, he said, ''If this shock or other negative scenarios occur, the global banking sector would face the situation from a position of strength, due to the structural improvements of the past decade.'' BICRAs classify countries into 10 groups ranging from the strongest to the weakest banking systems, the report said.


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