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Fitch: Southern European Bank Fundamentals Stabilising in 2015
December 17, 2014 / 4:07 PM / 3 years ago

Fitch: Southern European Bank Fundamentals Stabilising in 2015

(The following statement was released by the rating agency) BARCELONA/LONDON, December 17 (Fitch) Credit fundamentals for southern European banks should stabilise in 2015, supported by improving economic prospects, Fitch Ratings says. This means that most banking systems in the region have stable sector outlooks. But asset quality remains vulnerable and managing down non-performing loans will be a challenge across most of the region. However, the rating outlook for Spain, Italy and Portugal is negative because of weakening sovereign support. The operating environment for banks in most countries in southern Europe has modestly improved. Our 2015 real GDP growth forecast is higher now than a year ago, except for Italy. We have also upgraded Spain and Greece's sovereign ratings by one notch and revised Italy's Outlook from Negative to Stable and Portugal and Cyprus's from Negative to Positive since December 2013. The economic turnaround is feeding through to asset quality. Spain has already started to reverse deteriorating trends in non-performing loans. We expect non-performing loan ratios to level off in much of the rest of the region in 2015, helped by the slower pace of new problem loan formation, enhanced recoveries and slowing loan deleveraging. Nevertheless, the large stock of non-performing loans means that material improvements in asset quality are likely to take time to materialise, leaving southern European banks vulnerable to asset shocks if the economy turns. Earnings in 2015 should benefit from lower funding costs, supported by low deposit rates and more competitive access to capital markets. Lower loan impairment charges and progress with restructuring should also improve net income. But profitability will remain relatively weak for most banks due to subdued lending volumes, low interest rates and likely reduced carry trade revenues at some banks. Many banks in the region prioritised capital strengthening in 2014, ahead of the ECB's comprehensive assessment. But despite a relatively good outcome from the assessment (mainly with the exception of a number of mid-sized Italian banks), large amounts of unreserved impaired assets leave capital ratios under pressure. We expect a continued focus on reinforcing loss-absorbing buffers in 2015. Of the Fitch-rated financial institutions in Spain, Italy, Portugal Greece, Cyprus, Andorra and Malta, 49% are on Negative Outlook. But the picture varies by country, with most Italian and Portuguese banks on Negative Outlook, while Greece, Malta and Andorra have more Stable Outlooks. In Spain, seven of the 18 rated banking groups have Negative Outlooks. For more details on our expectations for southern European banks in the coming year, see "2015 Outlook: Southern European Banks", at www.fitchratings.com. Contact: Erwin van Lumich Managing Director +34 93 323 8403 Fitch Ratings Espana S.A.U. Paseo de Gracia, 85, 7th Floor 08008 Barcelona Cynthia Chan Senior Director Fitch Wire +44 20 3530 1655 Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153, Email: elaine.bailey@fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. Applicable Criteria and Related Research: 2015 Outlook: Southern European Banks here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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