Positive rating actions on global financial institutions (FIs) significantly outweighed negative actions in 4Q23, in line with the overall trend for 2023, Fitch Ratings says in a new report. There were 63 positive actions, including 34 upgrades, against 29 negative actions, including 11 downgrades.

Fitch took 398 actions on FI Long-Term Issuer Default Ratings and Insurer Financial Strength ratings in 4Q23. Over three quarters resulted in no rating, Outlook or Watch change.
 
 
 
Sovereign linkages drove 36% of all rating, Outlook, and Watch changes, affecting banks almost exclusively. Positive sovereign-driven rating changes in 4Q23 were concentrated in Greece, the Dominican Republic, Oman, and Vietnam, and negative ones in Egypt, Israel, and Panama.

For banks, non-sovereign-driven positive actions were mostly due to improving operating environments, firmed-up business profiles, better funding profiles and stronger capitalisation. Non-sovereign-driven negative actions were mostly due to weakened earnings and funding profiles, notably for four US regional banks, and pressures on asset quality and capitalisation.

For non-bank financial institutions (NBFIs), most positive actions were driven by strengthening business profiles and improved leverage ratios, while some were linked to shareholder support. Higher leverage drove negative actions.

Positive actions on insurers reflected earnings and capitalisation improvements and stronger company profiles, while negative actions were due to weakened capitalisation.
 
Some 85% of global FI ratings were on Stable Outlooks at end-2023, and Positive and Negative Outlooks and Watches were about equally balanced. Asset-quality deterioration and increased funding costs due to high interest rates are key risks for negative action on bank and NBFI ratings. Rising unemployment and deterioration in the SME and commercial real estate sectors could add to pressure on asset quality, while insurers’ investment portfolios are inherently sensitive to market volatility.