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The continued global economic recovery and gradually rising interest rates will support the operating performance and credit outlooks of companies in the financial sector this year, Fitch Ratings said.
Most financial institutions, including banks, non-bank financial institutions (NBFIs) and (re)insurers will have a "neutral" outlook for 2022, reflecting the continued improvement in global economies and operating conditions, the rating agency said in its latest analysis.
“The global tightening of monetary policies will be supportive of life insurer returns,” Fitch said, adding that economic growth is expected to slow slightly this year but still underpin credit expansion.
The rating agency noted that 80 percent of credit outlooks of financial institutions globally are neutral for this year. About 12 percent are improving and only 8 percent are deteriorating.
Loan asset quality for banks and NBFIs in 2022, however, is likely to deteriorate as fiscal and policy support wane.
“However, we believe banks will offset these reductions with improved pre-impairment profitability and the reduction of loan loss allowances and excess capital buffers accumulated through the pandemic,” Fitch said.
“Fitch-rated NBFIs’ solid capital levels and improved funding profiles should help mitigate a moderate pick-up in credit costs. NBFI operating performance is also expected to be supported by gradually rising interest rates.”
Sector outlooks
Among those assigned neutral outlooks are global investment managers, financial market infrastructure companies, finance and leasing companies, business development companies and securities firms.
Within the NBFI sub-sector, Fitch assigned “improving” outlook for global aircraft leasing firms, as air travel demand recovery steadies with vaccine rollouts.
For most of the companies, including those engaged in container leasing, commercial fleet management, truck leasing and rental, railcar leasing, commercial mortgage, auto finance, student finance, debt purchasing, consumer/mortgage finance and equipment rental, the outlooks are neutral.
However, outlooks for credit card, mortgage origination and servicing, particularly in the US, are deteriorating.
(Reporting by Cleofe Maceda; editing by Seban Scaria )
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