Banking risk monthly outlook: June 2025

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

What we're watching:

• Monetary policy easing in mainland China will potentially lead to limited tightening of banks’ structural liquidity positions.
• Uzbekistan’s regulatory push indicates reform progress, with further enhancements likely.
• Central American economies are expected to tighten their credit standards following US tariff uncertainties.
• Ghana is set to amend its cash reserve ratio (CRR), a move anticipated to mitigate the risk of liquidity shortfalls and currency mismatches.

The lowering of the loan prime rate in China as well as the simultaneous lowering of interest rate for deposit of large banks have been designed to reduce the negative impact on banks’ profits by limiting the spread between loan and deposit interest rates. The small reduction in the lending interest rate will likely have some limited positive impact on credit growth, while the lack of alternative means of savings will help maintain the banking sector’s loan-to-deposit ratio as a result.

Uzbekistan's recent regulatory initiatives indicate significant progress in banking sector reforms. Although the sale of state shares in banks has been postponed, reforms are ongoing, marked by tighter lending regulations, enhanced capital and liquidity requirements, and a new deposit insurance limit set for 2025. Bank sales may not achieve all privatization milestones and could extend into 2026 or beyond, but the groundwork laid this year is promising. This suggests that authorities are focusing on creating a more sustainable environment for investor entry. We anticipate further regulatory enhancements as part of a broader agenda to reform both the banking sector and the wider financial landscape, fostering a more resilient financial ecosystem in Uzbekistan.

Considering that Mexico, El Salvador and Costa Rica are expected to be the most impacted economies in Latin America from the US reciprocal tariffs, we are forecasting tighter credit standards from banks, anticipating a more uncertain economic environment. Although lower interest rates are expected to nudge some demand over the short term, it is likely that in general credit will grow less than expected over the rest of the year.

During its May 2025 meeting, Ghana's Monetary Policy Committee loosened its dynamic CRR requiring banks to maintain reserves in the currency of their deposits, effective June 5, 2025. This is expected to improve liquidity management by ensuring banks have immediate access to the necessary currency for withdrawals, thereby reducing the risk of liquidity shortfalls. Furthermore, banks will face less exposure to foreign exchange rate fluctuations, as they will no longer need to convert foreign currency reserves into domestic currency or vice versa. This measure is likely to stabilize banks' financial positions and mitigate risks associated with currency mismatches.