Fitch Ratings has downgraded five major European commercial banks, in the face of challenges facing financial markets, and the banking sector, generally.
The rating agency said Wednesday that, having completed its assessment of the large and relatively highly rated European banks, it has downgraded: Credit Agricole, Danske Bank, OP Pohjola Group, Rabobank Group, and Banque Federative du Credit Mutuel.
“While ratings for these banks are driven by idiosyncratic factors that determine how they rank in relation to each other and the wider rating universe, the downgrades reflect the broader phenomenon of stronger headwinds facing the banking industry as a whole,” it says.
“Exposure to troubled Eurozone countries through their subsidiaries was a direct consideration in the downgrades of Danske Bank and Credit Agricole,” it explains. “For the other banks, however, Fitch considers the Eurozone crisis is also having negative indirect consequences. Capital markets, in particular interbank markets, are not functioning effectively, and, along with more global factors, the crisis is driving economic slowdown.”
Fitch says that it foresees the current crisis in Europe continuing for some time, but it’s not forecasting a break-up of the eurozone. If that happened, bank ratings would be affected further, it notes.
“The recently completed EU summit did little to ease pressure and reinforced the inherent complexities of ‘resolving’ the crisis. This feeds the market’s scepticism with respect to policy makers’ ability to craft durable solutions, and highlights the ongoing potential for pronounced market volatility,” it says.
Fitch notes that all five banks have improved and continue to improve capital and liquidity positions, which is positive for credit ratings. However, it also says that the general developments in the global economy, and a notable shift in market confidence towards the banking sector as a whole outweigh the positives, and that these are the primary drivers of today’s downgrades. “All of these banks are exposed to capital market sentiment for their business models to function beyond the short term,” it notes.