Chennai: Credit Rating Agency Moody’s Investors Service On Monday, banks in India said, Saudi Arab And South Africa will see a big increase in margins in FY 2013.
Moody’s said a hike in policy rates in several G20 emerging markets to curb inflation will improve margins for banks.
The rating agency also said that a further rapid rise in inflation would require higher debt-loss provisions, which would eliminate margin gains.
“Systematically, a gradual increase in interest rates will improve banking leverage in most emerging market banking systems. As a result, Moody’s Banks in India, Saudi Arabia and South Africa expect a comparatively large margin growth in 2022-2023.
The rating agency’s focus is on banks in the ten emerging G20 markets: Argentina, Brazil, China, India, Indonesia, Mexico, Russia, Saudi Arabia, South Africa and Turkey.
Eugene Tarzimanov, vice president, senior credit officer at Moody’s, said, “Now that most central banks have tightened monetary policy to curb inflation, we expect a reduction in inflation in all ten emerging markets by 2023.” Which will help reduce asset risk for banks.
“If the rate of inflation rises sharply and there is a sharp rise in debt-servicing costs for borrowers, banks will have to increase their loan-loss provisions to a level that exceeds margin gains, which would be credit negative, ‘ said Tarzimanov.
Of the ten G-20 emerging markets, Turkey is experiencing the fastest inflation, reaching 73 percent in May 2022, followed by Argentina to 61 percent.
Rising rates of inflation are mainly due to lack of supply, rise in commodity prices and currency pressure.
When inflation picks up, the cost of credit for banks also increases. Accelerating inflation has also historically increased credit costs in seven out of 10 systems.
Moody’s expects banks in Russia and Turkey to increase credit costs significantly in 2022-2023. In a scenario where inflation materializes and leads to significant rate hikes, credit costs will also rise in Argentina, South Africa and Brazil.
If inflation rises more rapidly, the asset risk margin for banks will exceed the profit. Higher-than-expected inflation by Moody’s will result in higher credit costs that will outweigh the benefits of margin gains. In this scenario, the profitability of Brazilian and Turkish banks is likely to be worse than in other markets.
Moody’s said a hike in policy rates in several G20 emerging markets to curb inflation will improve margins for banks.
The rating agency also said that a further rapid rise in inflation would require higher debt-loss provisions, which would eliminate margin gains.
“Systematically, a gradual increase in interest rates will improve banking leverage in most emerging market banking systems. As a result, Moody’s Banks in India, Saudi Arabia and South Africa expect a comparatively large margin growth in 2022-2023.
The rating agency’s focus is on banks in the ten emerging G20 markets: Argentina, Brazil, China, India, Indonesia, Mexico, Russia, Saudi Arabia, South Africa and Turkey.
Eugene Tarzimanov, vice president, senior credit officer at Moody’s, said, “Now that most central banks have tightened monetary policy to curb inflation, we expect a reduction in inflation in all ten emerging markets by 2023.” Which will help reduce asset risk for banks.
“If the rate of inflation rises sharply and there is a sharp rise in debt-servicing costs for borrowers, banks will have to increase their loan-loss provisions to a level that exceeds margin gains, which would be credit negative, ‘ said Tarzimanov.
Of the ten G-20 emerging markets, Turkey is experiencing the fastest inflation, reaching 73 percent in May 2022, followed by Argentina to 61 percent.
Rising rates of inflation are mainly due to lack of supply, rise in commodity prices and currency pressure.
When inflation picks up, the cost of credit for banks also increases. Accelerating inflation has also historically increased credit costs in seven out of 10 systems.
Moody’s expects banks in Russia and Turkey to increase credit costs significantly in 2022-2023. In a scenario where inflation materializes and leads to significant rate hikes, credit costs will also rise in Argentina, South Africa and Brazil.
If inflation rises more rapidly, the asset risk margin for banks will exceed the profit. Higher-than-expected inflation by Moody’s will result in higher credit costs that will outweigh the benefits of margin gains. In this scenario, the profitability of Brazilian and Turkish banks is likely to be worse than in other markets.