Banks In Russia, India Most Vulnerable Among Emerging Markets
Banks in Russia and India have among the weakest asset quality indicators across emerging markets, shows data released by the International Monetary Fund (IMF) as part of its Global Financial Stability Report.
Russian and Indian lenders not only have the highest ratio of non-performing and problem loans but also the lowest Tier-1 capital ratios, shows the IMF data. Bad loans have continued to climb across a number of emerging economies for reasons ranging from an economic downturn to high corporate leverage and sectoral downturns.
Although the profitability of banks in emerging market economies is generally strong –in particular compared with that in the United States and Europe – heavy credit losses continue to erode profits at many banks, notably in Russia and India.IMF’s Global Financial Stability Report
The IMF went on to add that while banks have raised provisioning, this has not kept pace with bad loan formation. “Restoring provisioning coverage among the weakest banks is important to ensure the banking system has resilience to withstand further asset quality deterioration,” the IMF added.
Emerging market economies need to take further steps to increase their resilience, the multi-lateral agency said, as they continue to face challenges along several channels. Countries reliant on trade openness and large external financing needs could be challenged by tighter global financial conditions and unfavorable trade developments. Others, challenged in the corporate sector (China, India, Indonesia, Turkey) or banking sector (China, India, Russia), could face more broad-based risks, said the IMF.
It went on to recommend that authorities in these countries prioritise improving corporate debt-restructuring mechanisms, including formal insolvency frameworks and out-of-court debt restructuring.
Bank supervisors in countries whose banks are characterised by weak balance sheets, should carry out comprehensive asset quality assessments to gauge the extent of unrecognised credit losses.
These assessments should be followed by concrete steps to cover the losses and –where applicable – ensuing capital needs.IMF’s Global Financial Stability Report