Fitch Releases Updated Bank Ratings Study
The report, "Global Bank Rating Performance Study: Update 2015", complements Fitch's published Issuer Default Rating-centric transition and default studies, and examines the performance of the bank rating framework and its component ratings - the Viability Rating (VR) and its predecessor Individual Rating, as well as Support Ratings and Support Rating Floors. The end-2015 study, in conjunction with the 1990-2012 study provides data and analysis on bank failures, defaults and rating transitions over a 26-year time horizon.
Bank failures have been correlated to financial crises with notable peaks through the 1990s and in the financial crisis of the late 2000s. The 2008-2009 peak represented a crisis that was truly global and, for the first time, included failures of large, highly rated banking groups. Failures in recent years were heavily weighted towards developed economies, with the eurozone crisis accounting for a significant number.
From 2012 to 2015, a total of 35 Fitch-rated banks failed, representing an average one-year failure rate of 1.06%. This compares with a long-run one-year average failure rate of 1.6% over the 26 years covered by Fitch's rating performance studies.
Excluding movements to "failed" status, VR transitions to a rating more than one category from that at the start of the year were less than 1% in all 'b' and above categories. The vast majority of "failed" banks between 2012 and 2015 had "sub-investment-grade" VRs at the end of the year prior to the year of failure, and 27 of the 35 were rated in 'b' or below categories.
Bank failure rates remain between five and six times higher than bank defaults. The difference between failure and default is support. One-year bank default rates remain significantly lower than corporate default rates at 0.3% compared with 0.7%. Fitch expects to see the failure and default "gap" close as resolution regimes become more commonplace and regulators position their banking systems to become less reliant on state support.
Based on one-year cohorts over the 26 years covered by this study, defaults by banks with investment-grade equivalent Support Ratings remain extremely low with only four events, representing 0.05% of investment-grade observations.
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