DUBLIN: Banks led the way in a positive first quarter for European corporate credit ratings, according to S&P Ratings, as the eurozone’s increasingly robust recovery helped to ease pressures on the sector which has been burdened by low interest rates and large numbers of bad loans left over from the financial crisis. S&P upgraded European 14 banks during the first three months of the year, out of a total of 34 financial and nonfinancial companies. Deutsche Bank and Commerzbank were among five German groups to be upgraded, just months after Commerzbank was forced to launch a major restructuring programme to boost profits and US misconduct charges sparked fears Deutsche could be left critically short of capital.
Other upgrades reflected the strength of recovery among some of the countries that were most badly affected by the financial crisis. Three of Ireland’s “Big Four” banks were upgraded, along with two Spanish and two Portuguese lenders. The Irish government was forced to nationalise Permanent TSB and Allied Irish Banks during the financial crisis, as well as rescue Bank of Ireland, but S&P said in a report earlier this year that the sector had since got “back to where [it] once belonged”.
The total of 34 upgrades compared favourably with only 17 downgrades over the quarter, though the outlook for the coming quarters may not be quite as bright: the balance of companies with a negative outlook compared to those with a positive outlook worsened slightly compared to the end of 2016. At the end of the period, 16 per cent of rated companies had a negative outlook – which signals a one in three chance of being downgraded in the next two years – compared to 11 per cent of companies with a positive outlook. On the sovereign credit ratings front, there were three upgrades in the first quarter, with two going to Iceland and one for Cyprus. Spain, Serbia and Slovenia are the European countries with a notable chance of an upgrade, while Montenegro and the UK are both on negative watch.
