Banking Risk Monthly Outlook: August 2026

What we're watching

Our banking risk experts provide insight into events impacting the financial sector in emerging markets:

• Slowing credit growth will prompt the People’s Bank of China to lower the reserve requirement ratio for banks by the end of the year.
• Risk aversion is likely to restrain central European banks’ lending growth prospects through the remainder of 2026.
• Data releases will reveal the status of household debt in Brazil following a debt renegotiation program.
• Debt restructuring is increasingly likely in Senegal, raising risks for the domestic banking system.

Asia-Pacific banking risks

Slowing credit growth will prompt the People’s Bank of China (PBOC) to lower the reserve requirement ratio for banks by the end of the year. Mainland China’s GDP growth target has been set at 4.5%-5.0% in 2026. While overall GDP growth remains on target in the first half of 2026, credit growth has slowed substantially, with the PBOC pushing banks to increase lending after this slowed in the second quarter of 2026. To help these efforts, the PBOC will likely lower the reserve requirement ratio — currently 6.3% on average — for both small and large banks toward the end of 2026. Given tighter liquidity conditions faced by smaller banks, the majority of the rise in new lending will likely come from larger banks.

Europe banking risks

Risk aversion is likely to restrain Central European banks’ lending growth prospects through the remainder of 2026. Credit growth moderated through the first quarter of 2026 for most Central European and Balkan (CEB) banking sectors, reflecting geopolitical and energy developments from strikes on Iran and the disrupted shipping in the Strait of Hormuz. Although banks noted that credit demand from firms surprised to the upside through the second quarter of 2026, retail — in particular mortgage — demand faltered, according to the European Central Bank (ECB), likely partly because of the ECB’s June 2026 policy rate hike. Lower risk tolerance and economic outlook concerns are likely to reaffirm our outlook of weaker lending growth within CEB through the remainder of 2026.

Latin America banking risks 

Data releases will reveal the status of household debt in Brazil following a debt-renegotiation program. The Desenrola (2.0) program was launched in early May, allowing household and small to medium-sized enterprises (SMEs) to renegotiate debt and to rely on workers’ liquidity funds to improve households’ renegotiation terms. The program is scheduled to end in August, and early data suggests that less than 1% of total loans (roughly 2% of household loans) have benefited from the plan. Given the data lag and the slow effect of these measures, the program is unlikely to significantly reduce higher indebtedness levels and households’ constrained debt servicing abilities, as seen following the Desenrola 1.0 program. At that time, impairment levels improved over the short term but several households returned to debt shortly afterwards, benefiting from the additional space of borrowing capacity. Households are chronically indebted (with a debt-to-income ratio at 49.8%) and their debt service ratios are at their highest recorded level, at 28.2% of households’ national income as of April 2026.