THE SLOWING global economy poses a major threat to banks in the BRIC nations, as asset quality worsens and earnings drop, ratings agency Standard and Poor’s warned yesterday.
But the report also concluded that the governments of the countries will stand behind the banks, supporting them financially as the institutions are viewed as crucial to further economic development.
Banks in China are set to see some deterioration as the economy slows, while Indian banks are in a more vulnerable position because of the sharper slowdown, high inflation rate and the depreciation of the rupee, Standard and Poors said.
Brazil’s banks are a little less vulnerable because of the country’s relatively low unemployment rate.
But despite the slowdowns, the agency believes the banks will probably be safe thanks to state aid.
“State ownership and control of a significant part of the banking industry in BRIC countries is a critical rating factor,” said credit analyst Geeta Chugh.
“We expect governments to step in to avoid any abrupt deterioration in local banks’ financial condition.”