Asset quality, profit prospects weigh on banks in 2021

Emerging market banks face a negative outlook for 2021, while the outlook for insurers is stable, according to Moody’s Investors Service.

The rating agency said the pace and durability of economic recovery amid the Covid-19 pandemic, along with political and trade uncertainties, pose risks for financial institutions across emerging markets in Asia, Latin America, Europe, and the Middle East and Africa in 2021.

For banks, the outlook in the year ahead is negative, it said.

“The uncertain trajectory of asset quality is among the biggest risks for banks as operating environments remain fragile amid ongoing health concerns,” said Celina Vansetti-Hutchins, managing director at Moody’s.

“Profit growth will be modest because of low interest rates and subdued lending, but lower loan volumes should aid capital,” she said. “Additionally, banks’ lending and funding shifts in response to flatter yield curve dynamics and low rates will also pressure net interest margins.”

For insurers, the outlook is more stable, “as the lockdown from the pandemic has resulted in one-off gains in profitability,” Moody’s said.

However, it noted that pressures on insurers’ capital are increasing.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.