S&P Ratings said that the risks relate to weakening asset quality, the vulnerability to external capital flows and the correlation between emerging markets (EM) from an investor's point of view.
Monday 11, February 2019 BY MUZORIWA KUDAKWASHE
S&P Ratings said that the banking systems in emerging markets will face some key common risks in 2019 amid gradually slowing global growth and more expensive global liquidity.
In a report, the rating agency stated that as lenders continue to operate in less supportive economic environments and as some of them adopt IFRS 9 reporting, most emerging market banking systems will show at best stable asset quality indicators or a slight deterioration.
The effects of these risks started surfacing in the last two quarters of 2018 in Turkey, S&P said that banks in GCC may also see a significant deterioration.
Mohamed Damak, S&P Global Ratings Credit Analyst, said that risks from external debt are particularly relevant for Turkey and the higher returns in more mature markets, as well as homegrown challenges in these emerging markets, have certainly influenced investor decisions to exit.
In Saudi Arabia, given the limited business sector diversification in the economy and the small number of large corporations, lenders are exposed to structurally high concentration risk.
Similarly, Turkish banks are on the other hand highly exposed to short-term external funding -- which is subject to increased pricing and rollover risks amid operating environment risks.