Entering 2016! 4 key risks to global banking sector

According to a report published by Standard & Poor's Ratings Services titled "The 2016 Global Credit Outlook For Banks: Challenges Still Numerous Leading Into The Chinese Year Of The Monkey," there are four key risks and two emerging risks that could be most likely to influence bank ratings in 2016.

Risks to global banking sector credit quality leading into 2016 remain numerous, according to a report published today by Standard & Poor's Ratings Services.

The report, titled "The 2016 Global Credit Outlook For Banks: Challenges Still Numerous Leading Into The Chinese Year Of The Monkey," identifies four key risks and two emerging risks that we believe could be most likely to influence bank ratings in 2016. The key risk factors we identify are

(i) China
(ii) higher U.S. interest rates and potentially volatile currencies and other market prices including oil, other commodities, and property
(iii) regulatory developments, and (iv) geopolitical risks.

Meanwhile, emerging risks that could influence bank credit quality are (i) lower market liquidity, and (ii) cyber-security. The relative importance of these key and emerging risks tends to vary by region.

The report also notes there is more certainty looking toward 2016 compared with this time last year mainly because rating adjustments we flagged leading into 2015 for banks in jurisdictions where government support was expected to diminish--principally in Western Europe and the U.S.--has now largely occurred.

While the recovery of the global banking sector from the aftermath of the global financial crisis beginning in 2007 has been has been a long and slow grind, the sector is now in much better shape to contend with challenges ahead--and they remain numerous. Across six major regions globally, issuers on negative outlook or CreditWatch with negative implications still outnumber positive ones, resulting in a net negative bias of about 30% of banking group issuers (at Dec. 4, 2015). While there are variations between regions, our outlook overall is that ratings momentum in 2016 is more likely to be negative.

We currently identify nine of 20 of the world's largest economies and banking sectors as showing a negative trend for economic risk: China and Japan (being the world's second- and third-largest economies); each of the four "BRIC" countries (Brazil, Russia, and India, in addition to China); and Germany, Canada, Sweden, and Hong Kong. By contrast, the U.K., Italy, Spain, and Singapore show positive trends for economic risk, and our view of the economic risk trend in the U.S. is stable.