January 11, 2017 / 9:13 AM / a year ago

Fitch: Global Credit Growth Slows in 2016; Macro-Prudential Risks Decreasing

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: Macro-Prudential Risk Monitor - January 2017 here NEW YORK, January 11 (Fitch) Real credit growth in 2016 slowed to the lowest level since the global financial crisis (GFC) in 2009, says Fitch Ratings in its latest Macro-Prudential Risk Monitor. Consequently, macro-prudential risk indicators (MPI scores) continue to trend lower. Fitch estimates that global median real credit growth slowed to 2.9% in 2016 (below the May 2016 estimate of 3.7%), down from 5.5% in 2015. This is driven by a marked deceleration to 3.8% median growth in emerging markets (EMs), well below average post-GFC growth of 8.5% across 2010-2015. Real credit growth slowed yoy in 2016 for 59% of countries covered in the report, and was negative in approximately one-in-four countries. For Middle East and Africa and Latin America, median credit growth slowed to 1.7% and 4% respectively, while EM Europe's weak credit performance continued at 1.7%. EM Asia saw moderate credit growth of 10.3%, but this is weaker than 2010-2012 performance immediately post-GFC and remains below double-digits for half of countries in the region. Modest credit growth (2.6%), continued in developed markets (DMs), in line with the economic recovery The number of EMs scoring MPI 3, indicating high vulnerability to systemic risk, has fallen to three from five. There are 17 EMs for whom real credit growth exceeded 15% in two successive years in 2013-2016 (the trigger for an MPI 2 or above for EMs), or 23% of those included in the report, down from 25 in the previous report. Ethiopia, Turkey and Venezuela remain on MPI 3. Bolivia and China have reverted to MPI 1 from MPI 3 due to the model reference period moving forward a year to 2013-2016 for EMs. For China, whilst the previous credit boom that decelerated after 2012 is no longer reflected in the MPI score, Fitch believes macro-prudential risks remain high. The economic policy framework prioritises rapid economic growth over macroeconomic stability and credit continues to grow more rapidly than nominal GDP, causing ever-rising credit/GDP and contributing to a sharp 2016 rebound in the property market. In Bolivia, indicators of bank solvency, asset quality and profitability have remained healthy. However, potential macro-prudential risks remain present due to the boliviano's overvaluation and still robust lending growth due to the expansive monetary policy stance and the 2013 Financial Services Law which sets credit quotas and interest rate ceilings for certain sectors of the economy. In the developed world, Hong Kong and Macao remain on MPI 3, unchanged from the previous report. These are two of the eight DMs for whom credit/GDP is more than 5pp above trend in a single year between 2014 and 2016 (the trigger for an MPI 2 or above for DMs). This is down from 12 in the previous report, where the model reference period was 2013-2015 for DMs. The proportion of countries scoring MPI 1, indicating low vulnerability to systemic risk, is now at a record high of 78%, up from 68% in May 2016, reflecting subdued credit growth. Overall, 15 countries reverted to MPI 1, and only three saw their score increase - Oman, Sri Lanka and Vietnam moved to MPI 2. Bank Viability Rating (VR) changes have led to four Banking System Indicator (BSI) changes: Sweden (to 'aa' from 'a'), South Korea (to 'a' from 'bbb') and Slovenia (to 'bb' from 'b') have improved; and Azerbaijan weakened (to 'ccc' from 'b'). Fitch has withdrawn the BSI indicators for Luxembourg and Slovakia on insufficient coverage. This report updates the systemic risk indicators Fitch has published since 2005. It aims to identify the build-up of potential stress in banking systems due to a specific set of circumstances: rapid credit growth accompanied by bubbles in housing or equity markets, or an appreciated real exchange rate (RER), the latter sometimes associated with asset market bubbles. The focus is therefore on only one potential source of banking system stress. The latest 'Macro-Prudential Risk Monitor' is available at 'www.fitchratings.com'. Contact: Robert Shearman Director, Model and Operational Risk Officer, Sovereigns +44 20 3530 1759 Fitch Ratings Limited 30 North Colonnade London E14 5GN Bosco Dias Director, Financial Institutions +44 20 3530 1084 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com; Hannah James, New York, Tel: + 1 646 582 4947, Email: hannah.james@fitchratings.com; Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com. Additional information is available on www.fitchratings.com. Applicable Criteria Sovereign Rating Criteria (pub. 12 Aug 2014) here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. 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