Driven by improved sovereign ratings, global financial institutions saw positive rating actions outpace negative rating activity in the third quarter, Fitch Ratings says.
In a new report, the rating agency said that 16% of financial firms recorded positive rating actions in the quarter, while 8% faced negative rating moves.
Almost a third of positive rating activity was tied to sovereign upgrades, Fitch said — led by an upgrade for Italy’s long-term rating to BBB+ from BBB.
On Wednesday, Fitch upgraded 14 more Italian financial institutions — six banks, six insurers, and two non-bank financial institutions. It cited “reduced sovereign risk and lower asset concentration risk for insurers, stronger buffers and operating conditions for banks, and selective support-driven actions among NBFIs.”
The sovereign upgrade resulted in a positive revision to the operating environment score for Italian banks, and it also enhanced the quality of Italian banks’ securities portfolios, it noted. Fitch added that it will assess the implications “from improved funding costs, wholesale market access and potentially stronger domestic credit demand.”
Similarly, the operating environment for Italian insurers was also upgraded due to lower sovereign risk.
“Investment risk remains a key consideration for Italian insurer ratings, but its relative importance has reduced with Italy’s higher rating and lower concentration risk,” it said.
Along with Italian banks and insurers, there was also positive rating action in central and Eastern Europe in the third quarter, which resulted in EMEA (Europe, the Middle East and Africa) issuers accounting for 32% of the upgrade activity.
At the same time, negative rating activity was also tied to sovereigns, Fitch noted — with the rating outlooks on Poland and Thailand being revised to negative from stable, which filtered down to financial institutions there too.
In the quarter, the share of financials with positive rating outlooks and watches declined slightly to 8%, down from 10% in the second quarter, and the proportion of negative outlooks and watches rose to 8% from 7%, it said.