Most rated banks and insurance companies around the globe will experience only moderate changes in their creditworthiness and performance in 2018, S&P Global Ratings said in a report published today.
S&P Global Ratings expects continuing global economic growth, stable financial conditions in most regions, and the still cautious stance of the major central banks to remain supporting factors.
"However, we also see increasing downside risks to financial stability, perhaps belying the sanguine signals that markets are currently sending," said one of the authors of the report, S&P Global Ratings credit analyst Alexandre Birry.
Considerable monetary stimulus over a protracted period appears to have driven a sharp rise in asset prices and numbed market volatility, even in the face of geopolitical uncertainty and a potential reduction in the size of central banks' balance sheets, Mr. Birry said.
All of which prompts the question whether monetary tightening by central banks--even if gradual--or other political events--such as Brexit or trade protection--could provoke unexpected market volatility and test the preparedness of banks and insurance companies. If this were to occur, it would threaten our base-case expectations and put pressure on ratings.
"On the upside, if the global economy grows at or beyond the 3.7% pace S&P Global's economists currently expect, the odds of considerable instability would certainly diminish," Mr. Birry added.
Beyond the global macroeconomic story, we believe that common drivers of a regulatory, political, and monetary nature will lead to divergence in the credit outlook regionally, and between the various financial services sectors.