Tag: moody s

Moody’s revises Indian banks’ outlook to stable from negative, BFSI News, ET BFSI

Banking & Finance

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Moody’s Investors Service has revised the outlook for the Indian banking system to stable from negative. The credit rating agency expects the operating environment to be stable as the economy gradually recovers from pandemic. “We expect India’s economy to continue to recover in the next 12-18 months, with GDP growing 9.3% in the fiscal year ending March 2022 and 7.9% in the following year. The pickup in economic activity will drive credit growth, which we expect to be 10%-13% annually,” said Moody’s in a report.

Moody’s said that weak corporate financials and funding constraints at finance companies have been key negative factors for banks but now these risks have receded.

Moody’s expects asset quality to remain stable. In a report Moody’s said, “The deterioration of asset quality since the onset of the pandemic has been more moderate than we expected despite relatively limited regulatory support for borrowers. The quality of retail loans has deteriorated, but to a limited degree because large-scale job losses have not occurred. We expect asset quality will further improve, leading to decline in credit costs, as economic activity normalizes”.

In the report titled ” Banking system outlook – India : stabilizing asset quality and improved capital drive outlook change to stable” Moody’s said, “Capital ratios have risen across rated banks in the past year because most have issued new shares. Public sector banks’ ability to raise equity capital from the market is particularly credit positive because it reduces their dependence on the government for capital. However, further increases in capital will be limited because banks will use most of retained earnings to support an acceleration of loan growth”.



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Moody’s raises rating outlook to stable for 18 corporates, banks, BFSI News, ET BFSI

Banking & Finance

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Moody’s Investors Service on Wednesday raised the rating outlook for 18 Indian corporates and banks, including Reliance Industries, Infosys, SBI and Axis Bank, to ‘stable’ from ‘negative’. This follows the upgrade by the US-based rating agency in India’s sovereign rating outlook to ‘stable’ from ‘negative’ on Tuesday. The agency had affirmed the sovereign rating at ‘Baa3’.

The nine companies whose rating outlook has been revised upwards are RIL, TCS, Infosys, ONGC, Petronet LNG Ltd, UltraTech Cement, Oil India, Indian Oil Corporation and Hindustan Petroleum Corporation Ltd (HPCL).

The agency also affirmed the rating on privatisation-bound Bharat Petroleum Corporation (BPCL), but maintained the ‘negative’ outlook.

The nine banks whose outlook has been revised to ‘stable’ are SBI, Axis Bank, Bank of Baroda, Canara Bank, Axis Bank, HDFC Bank, ICICI Bank, PNB, Union Bank and EXIM Bank.

“Stabilization in asset quality and improved capital are the main drivers of this rating action,” Moody’s said.

Also, the rating outlook has been revised to ‘stable’ from ‘negative’ on 10 Indian infrastructure issuers, including NTPC, NHAI, PGCIL, Gail, Adani Transmission and Adani Ports and Special Economic Zone Limited (APSEZ). PTI JD ABM ABM



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Moody’s, BFSI News, ET BFSI

Banking & Finance

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SINGAPORE: Wide adoption of central bank digital currencies (CBDCs) in cross-border payments and settlements will be credit negative for banks because of lower fees and commissions, Moody’s Investors Service said on Monday.

This is particularly for those banks that are active in foreign-currency payments, clearing and remittances, it said in its latest credit outlook report.

It is the first time that the Bank of International Settlements (BIS) and various central banks are testing multiple CBDCs in a single platform for cross-border settlements.

This is an important step if CBDCs are to be adopted beyond domestic transactions. Earlier in 2021, the Singaporean and French central banks successfully tested dual-CBDC cross-border transactions, said Moody’s.

On September 3, the BIS together with central banks of Singapore, Australia, Malaysia and South Africa started testing CBDCs for cross-border settlements.

The project called Dunbar aims to build a prototype platform for settlement in multiple CBDCs with the target being faster, cheaper and more secure cross-border payments and settlements between financial institutions.

Moody’s said the revenue that banks generate from cross-border transactions is significant. Globally, banks generated about 230 billion dollars in revenue from cross-border transactions in 2019, based on data from consulting firm McKinsey.

Banks in Asia Pacific made up 100 billion dollars of this amount, the largest share globally, with most revenue coming from commercial transactions such as bank-to-bank.

According to McKinsey, banks globally generated about 60 billion dollars in revenue in consumer business in 2019 for cross-border transactions such as remittances, where the banks charge hefty fees.

Banks on average charge 6.4 per cent on outward remittances, based on World Bank data, with Nigerian, South African and Thai banks charging some of the highest fees globally. These fees will be reduced with the wider adoption of CBDCs.

It is uncertain if the platform prototypes developed under the Dunbar project will be adopted by other central banks. However, the BIS expects that the results of this project will guide the development of global and regional platforms for more efficient cross-border payments.



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Moody’s, BFSI News, ET BFSI

Personal Finance

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NEW DELHI: Moody’s Investors Service on Tuesday said the economic activity in India is picking up with the gradual easing of Covid restrictions and there could be further upside to growth as economies around the world gradually reopen.

In its August update to ‘Global Macro Outlook 2021-22’, Moody’s retained India’s growth forecast for the 2021 calendar year at 9.6 per cent and 7 per cent for 2022.

“In India, economic activity is picking up alongside a gradual easing of restrictions that were implemented in response to the second wave. And there is further upside to growth as economies around the world progressively reopen,” Moody’s said.

The rating agency said it expects the Reserve Bank to maintain an accommodative policy stance until economic growth prospects “durably improve”.

“We expect the RBI …. to maintain the status quo until the end of this year. We expect to see an increasing number of emerging market central banks shift to a neutral policy stance amid their gathering growth momentum later this year and early next year,” Moody’s said.

Indian economy contracted 7.3 per cent in 2020-21 fiscal. GDP growth in the current fiscal was estimated to be in double digits initially, but a severe second wave of the pandemic has led to various agencies cut growth projections.

Moody’s had in June projected a 9.3 per cent growth for the current fiscal ending March 2022.

It said the rapid global spread of the highly contagious delta variant of the coronavirus is a stark reminder that the global pandemic is far from over, although some vaccines appear to be highly effective at suppressing the severe disease, reducing the need for hospitalisations and lowering the incidence of fatalities.

Vaccination rates, the extent of serious infections and mobility restrictions remain the key determinants of where countries find themselves in their economic recovery cycle, it said, adding while the spread of the delta variant has prompted mobility restrictions in Asia, renewed lockdowns are far less likely in other regions of the world.

Moody’s estimates that the G-20 economies will grow by 6.2 per cent in 2021, after a 3.2 per cent contraction last year, followed by 4.5 per cent growth in 2022.

G-20 advanced economies will grow by 5.6 per cent collectively in 2021 while emerging markets will collectively expand by 7.2 per cent in 2021, it added.



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Moody’s, BFSI News, ET BFSI

Banking & Finance

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Asset risks for banks will rise in most parts of ASEAN (the Association of Southeast Asian Nations) and India as the region battles new waves of coronavirus infections amid low vaccination rates, according to a report by Moody’s Investors Service.

However, continued policy support and strong loss-absorbing buffers mitigate the negative impact for banks in ASEAN and India, coronavirus outbreaks triggering strict containment steps will impede economic recovery and erode borrowers’ debt repayment capacity, increasing their asset risks, said the report.

The buffers

It further said that banks’ strong loss-absorbing buffers, policy support and the virus impact focused on a few segments will keep their credit strength intact.

“Banks in Thailand (Baa1 stable), the Philippines (Baa2 stable), and Indonesia (Baa2 stable) are particularly vulnerable as their economies struggle with elevated numbers of virus cases, spiking uncertainties regarding their economies reopening. Yet, policy support for borrowers and the concentration of the impact on a few economic segments will limit the deterioration in banks’ overall asset quality,” said Rebecca Tan, a Moody’s Vice President and Senior Analyst.

For India (Baa3 negative), Moody’s projects the economy will return to growth in the fiscal year ending March 2022 (fiscal 2021), but the severe second coronavirus outbreak will delay improvements in asset quality.

Boosting trade

By contrast, the resumption of global economic activity will boost trade growth in Vietnam (Ba3 positive), Malaysia (A3 stable) and Singapore (Aaa stable). This will help offset domestic economic disruptions from the pandemic, although slow deployment of vaccines is a risk for Vietnam, the report noted.

Continued policy support for borrowers from governments and central banks will prevent sharp increases in defaults on bank loans. And the financial impact of a prolonged pandemic is concentrated on a few economic segments, which will limit the deterioration in banks’ overall asset quality.

More fundamentally, various regulatory measures implemented in the past decade to strengthen banks’ balance sheets have led banks to face the pandemic on a strong footing. Since the onset of the pandemic, most banks in the region have built sufficient loan loss buffers to cover likely increases in nonperforming loans, it added.



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Moody’s sees auto loan delinquencies rising for three to six months, BFSI News, ET BFSI

Banking & Finance

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Moody’s which reported stable collection rates for auto-loan asset-backed securities (ABS) rated by it in the quarter ended March 2021, sees them falling over the next three to six months.

The collection rates were similar to the pre-Covid levels in the March quarter, according to a report. Delinquency rates were also similar in the March quarter over the previous quarter.

The delay in the country’s economic recovery, rise in fuel prices is hurting the commercial vehicle segment. This will hit the performance of asset-backed securities backed by commercial vehicle loans, according to a report by Moody’s Investors Service earlier this month.

“Slowing economic activity in India due to the second wave will constrain commercial vehicle owners’ capacity to pay auto loans. As a result, commercial vehicle loan delinquencies will increase in India and collection rates will remain below March levels over the next three to six months,” according to Moody’s.

Sluggish economic activity will dampen demand for goods transportation and lower freight rates. This will reduce commercial vehicle operators’ incomes, and therefore, their ability to repay auto loans, the agency said.

Furthermore, fuel costs are rising following a depreciation of the rupee and state and central fuel tax changes, which have hiked up commercial vehicle operators’ costs and will further constrain their loan-repayment ability.

Cash reserves, excess spread and transaction structures will mitigate risks. The Indian asset-backed securities that Moody’s rates benefit from non-amortising cash reserves and substantial excess spread, providing liquidity and buffers against losses. Most deals also have timely interest and ultimate principal structures, which provide additional protection against liquidity risks.

Second wave harsh

The impact of the first Covid wave was cushioned with multiple measures such as regulatory moratorium, loan restructuring, additional funding through the emergency credit line guarantee scheme. Also, a sharp pent-up demand recovery raised optimism about faster-than-expected normalisation, according to India Ratings.

However, the outcome may be different during the second wave, due to the wide-scale impact, including rural areas and pent-up demand being absorbed already.

With reduced borrowers’ savings and rising operating costs due to fuel inflation, the excess capacity had its offsetting impact on freight contract renewals or market freight rates, all impacting borrowers’ cash flows.

Early demand indicators, such as the E-way bill, diesel consumption are showing signs of moderation and asset inflation (rising raw material prices like steel and cement) would impact demand offtake and thus load availability.

Thus, both demand and rising operating costs would moderate borrowers’ cash flows in the financial year 2021-22.

“Lenders’ collection efficiency would also be affected by restricted mobility as the second wave has spread across all geographies, the agency said, adding it has a negative outlook on commercial vehicle finance as an asset class.

There are emerging trends of rising loan tenures across vehicle financiers to reduce servicing burden for borrowers, however, these could lead to a rise in loss given defaults for collaterals.



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Hedge fund fallout wipes over $9 bn from market value of Credit Suisse, Nomura, BFSI News, ET BFSI

Banking & Finance

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LONDON: Shares in Nomura and Credit Suisse fell further on Wednesday, with a collective $9 billion wiped off their market value so far this week as the banks braced for big losses from the blow-up of US-based hedge fund Archegos Capital.

Credit Suisse and Nomura were slower than rivals to cut their exposure to Archegos, a family office run by former Tiger Asia manager Bill Hwang. Global lenders that acted as brokers for Archegos may have to write down more $6 billion after the fund defaulted on payments, Reuters has reported.

Credit Suisse shares fell 4% on Wednesday, bringing this week’s decline to nearly 20%. Already under pressure from its exposure to failed supply chain finance firm Greensill, Credit Suisse’s plans to buy back shares and pay dividends this year could now be at risk, analysts said.

The bank’s market capitalisation has shrunk by five billion Swiss francs since Friday to 25.57 billion Swiss francs ($27.12 billion). Sources estimate Credit Suisse’s losses may total $5 billion but the bank declined to comment.

UBS analysts said “a lot of unanswered questions” remained, referring to Credit Suisse’s involvement first in Greensill and now the US-based hedge fund.

“Outflows? P&L impact? Insurance coverage? Quality of underlying assets? Litigation? Developments around involved partners? Reputational impact? Impact on strategy?” they wrote.

Meanwhile Nomura which has warned of a $2 billion hit from Archegos, fell a further 2.9% following a 0.8% fall on Japanese stock markets on Wednesday. Its market capitalisation has dropped from 2.3 trillion yen ($20.81 billion) to 1.88 trillion yen since Friday, Refinitiv data shows.

Ratings agencies added to the pressure as Moody’s slashed its outlook on Nomura to “negative”, citing potential deficiencies in its risk management process.

Fitch placed Nomura’s viability ratings on “negative watch” citing the potential for material losses arising from transactions with a US client in one of its US subsidiaries as well as questions over the adequacy of Nomura’s controls.

Meanwhile, in derivatives markets the cost of insuring exposure to Credit Suisse and Nomura rose.

Credit Suisse five-year credit defaults swaps (CDS) were trading at 73 basis points, the highest in a year and up 17 bps from Friday’s close, IHS Markit data showed.

That implies a cost of 73,000 Swiss francs a year to insure exposure to 10 million francs worth of Credit Suisse debt for a five-year period.

Nomura CDS were at 52 bps, versus 41 bps on Friday.



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