Credit rating actions for global financial institutions were mostly positive in the first quarter, driven by sovereign rating improvements, says Fitch Ratings.
In a research note, the rating agency reported it took 86 positive rating actions on financial firms in the quarter, outnumbering the negative rating actions by a ratio of three to one.
The positive rating actions were largely driven by sovereign linkages, which affected about 70% of the positive rating changes.
Positive actions that didn’t involve sovereign rating changes “were mostly due to improving operating environments, stronger profitability and capitalization, and [mergers and acquisitions]” for global banks, Fitch said.
Conversely, banks that faced negative credit rating actions in the first quarter suffered “weaker profitability and capitalization, and deterioration in risk profiles and asset quality.”
The prospect of interest rates staying higher for a longer period of time “could put pressure on some [financial institutions’] credit quality through weaker asset quality and higher funding costs,” it said.
For asset managers and other non-banks, positive rating actions in the first quarter were largely driven by changes in the ratings of parent companies, strong asset quality or improved business profiles, Fitch said.
“Reduced government support expectations on Chinese national asset management companies, and weakened liquidity and funding profiles, drove negative actions,” it noted.
Most global financial institutions (83%) had stable rating outlooks at the end of the first quarter, while 8% were on positive rating watch/outlook, and 6% faced negative outlooks (2% of issuers had no outlook, given their already rock-bottom ratings).