NAIROBI, Kenya Jan 12-The vast majority of financial institution (FI) sector and subsector outlooks are neutral for 2022, reflecting the expectation for a continued, albeit slowing, global economic recovery and improvement in operating environments for banks, non-bank financial institutions (NBFIs), and (re)insurers, Fitch Ratings says.
The global rating agency expects a deterioration in loan asset quality for banks and NBFIs in 2022 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,” the agency said in a statement.
Fitch-rated NBFIs’ solid capital levels and improved funding profiles were tipped to help mitigate a moderate pick-up in credit costs.
NBFI operating performance is also expected to be supported by gradually rising interest rates.
Further, Fitch says the global tightening of monetary policies will be supportive of life insurer returns; however, the negative impact of historic low rates on profitability will remain for some time.
Low rates have resulted in an increased allocation to higher-risk alternative investments by life insurers, as well as a structural shift toward more capital-light models.
The economic recovery should result in volume growth in non-life business lines, with pricing discipline expected to continue. Claims are expected normalise, but costs should rise with inflation.
Globally, economic growth is expected to slow slightly in 2022 but still support credit expansion.
Fitch lowered its global GDP growth by 0.3 percentage points to 5.7 percent in its latest global economic outlook and trimmed its world growth forecast for 2022 to 4.2 percent from 4.4 percent, primarily reflecting a more intense slowdown in China.
