- Further easing of residential mortgage lending to major cities in mainland China
- Lack of public capital injections into banks to boost privatization efforts in India
- Tighter macroprudential policy in emerging Europe due to residential real estate vulnerabilities
- Debate on a bill that would change the liquidation processes in Panama
- The phasing out of COVID-19 support measures in the Gulf States
- Q4 2021 data released to reveal state of asset quality in Uganda, after forbearance measures expire
Further easing of residential mortgage lending in mainland China’s major cities.
Authorities in mainland China are expected to extend mortgage easing to other key cities after doing so for Guangzhou. The drop in the prime rate for medium-term loans signals an easing in lending conditions, and it is highly likely that the easing will be widespread and focused on lower-risk borrowers such as homebuyers rather than investors.
The lack of state capital injection into Indian banks is likely to boost privatization efforts.
The Indian government announced in its budget for the financial year 2022/23 that it would not inject any capital into state-owned banks. Instead, he is looking to launch an IPO of Life Insurance Company of India; this indicates that the state insurance company – which also has stakes in many state-owned banks – will be partially privatised. The lack of capital injections this year suggests that the privatization of several state-owned banks will be completed in the 2022/23 financial year.
By the end of 2021, Bangladeshi authorities had shown willingness to relax the minimum loan repayment requirement for a loan to be classified as normal; this policy will likely continue through 2022. While regulators may show resilience and a strong stance in favor of better loan classification, our experts expect them to ease again in the future. start. We expect the non-performing loan (NPL) ratio to remain around 8.3% for 2022.
Tighter macroprudential policy across emerging Europe.
Banking sectors in Europe are exposed to a variety of residential real estate vulnerabilities, including large mortgage lending, high house price growth, overvalued house prices, high leverage and signs of relaxation of credit standards. The authorities have already started to take steps to address residential real estate vulnerabilities through policy tightening; Bulgaria, Croatia, Czechia and Romania reported increases in countercyclical capital buffer (CCyB) rates between 2022 and 2023 in an effort to slow mortgage rates. Other borrower-focused measures or targeted capital-based instruments, such as a systemic risk buffer, are likely to be activated or reinforced by European authorities as a preventive measure.
Debate on a bill that would change the liquidation processes in Panama.
We await further developments on Bill 165, which is currently under discussion in the National Assembly of Panama. The bill aims to change the conditions under which liquidations are carried out in the country. The current bill would require banks to use market value (rather than auction value) for assets pledged as collateral for loans. In addition, it would require banks to show the difference between the value of the property and the borrower’s outstanding balance. In turn, if this law is passed under current conditions, it could reduce the ability of Panamanian banks to disburse loans given the increased risk of losses despite the existence of guarantees. It would also affect profitability in the short to medium term due to the limited ability to recover loan losses and a likely increased reliance on provisioning.
Gulf States will continue to phase out COVID-19 support measures in the coming months.
Gulf States should phase out remaining COVID-19 support measures at a faster pace given the boost these economies are receiving from higher oil prices and relatively stable financial soundness indicators during the pandemic. . Saudi Arabia is unlikely to further extend its loan repayment moratorium, which we believe is currently due to expire at the end of March, as NPLs remain very low. Oman and Qatar previously extended some loan repayment moratoriums until December 2022 and 2023, respectively, while moratoriums in Kuwait and the United Arab Emirates have already expired. We expect Kuwait to announce a gradual reduction in its remaining capital conservation buffer and forbearance from risk weighting. In the United Arab Emirates, forbearance on bank capital buffers, liquidity and stable funding requirements, which are due to expire in June, should also be removed, but more gradually given the much higher NPL ratio of this sector and slower credit growth. In anticipation of a further dismantling of forbearance, we expect banks to continue to raise additional capital and provisions to bolster capital buffers and absorb potential loan losses.
Release of Q4 2021 data to reveal the state of asset quality in Uganda, after forbearance measures expire.
Uganda is expected to release its December 2021 Financial Stability Review, likely to reveal the first impact on asset quality after forbearance measures end in September 2021. So far, asset quality risks Assets were contained through forbearance measures, reflected by the sector’s NPL. ratio, which stood at 5.4%, the same level as at the start of the pandemic. IHS Markit analysts predict that the NPL ratio will begin to gradually increase in 2022 as some of the restructured loans materialize into NPLs, which will negatively affect loan growth. IHS Markit forecasts year-on-year loan growth of 5.4% and 6.6% for 2021 and 2022, respectively, for Uganda, compared to year-on-year loan growth of 15.4% in 2020.
This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.
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