New Telegraph

September 30, 2023

Fitch: Declining global trade to hurt EMEA banks

Fitch Ratings has said that the slump in global trade, occasioned by the COVID-19 will negatively impact the profitability and assets of trade finance banks in countries of Europe, Middle East and Africa (EMEA) region. In a statement obtained by New Telegraph Mobday, the rating agency said that risks from the coronavirus fallout were driving negative out looks on EMEA Trade Finance Banks’ Long-Term Issuer Default Ratings (IDR), adding that this “reflect the increased downside risks to their ratings due to the expected impact of coronavirus crisis on the global economy.” According to the statement, “Fitch’s baseline forecast sees global GDP contracting by 4.6 per cent in 2020 (with the largest EM economies shrinking by 1.6 per cent), followed by a recovery of 4.9 per cent in 2021. The pandemic creates downside risks to the banks’ financial profiles due to lower business volumes, lower revenues, and heightened asset quality risks, which are likely to increase impairment charges and could erode capital buffers.

“Ratings could be downgraded because of greaterthan- expected deterioration in banks’ operating environments, asset quality and capitalisation. At the same time, banks have varying levels of rating headroom against the deteriorated economic environments. Generally adequate capitalisation and relatively sufficient liquidity underpin this assessment. Banks’ outlooks could be revised to stable and ratings affirmed if the economic recovery is faster and stronger than expected, and if banks’ financial profiles are not materially affected.” It would be recalled that in a report released in May, shipping consultancy agency, BIMCO, said global trade might slump by 32 per cent this year due to the coronavirus crisis. The agency said that while it expects a sharp recovery of shipping demand and economic activity in general, the economy would face a long and uncertain climb back.

It said the post-pandemic world would be faced with lower consumer spending power, lower consumer confidence, and lower overall demand, among others, both domestically and internationally. Citing figures from the World Trade Organisation (WTO), BIMCO said: “In its most optimistic view, global trade will fall by 13 per cent in 2020, whereas its pessimistic outlook sees trade falling by 32 per cent from 2019 levels, with a recovery in 2021 that will not return volumes to pre-pandemic levels.

“BIMCO believes the actual drop will be somewhere between these two figures, depending on how long it takes for the pandemic to be brought under control, and how governments around the world are able to coordinate and implement effective stimulus measures to get their economies back up and running,” it stated.

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