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India to restructure 300B rupees of loans; China to swap bad debt for equity

Street Talk Episode 40 - Digital Banks Take a Page Out of 'Mad Men'

Broadband Only Homes Skyrocket In 2018 Validating Top MSOs Connectivity Pivot

Power Forecast Briefing: As retirements accelerate, can renewable energy fill the gap?

2019 Credit Risk Perspectives: Is The Credit Cycle Turning? A Fundamentals View

India to restructure 300B rupees of loans; China to swap bad debt for equity

* TheReserve Bank of India approved a proposal to restructure around 300 billion Indianrupees of loans granted to state agencies in Punjab for buying and storing foodgrains, Mint reported, citing "two bankers with direct knowledgeof the development."

* China'sState Council unveiled a plan to allow companies give their lenders equity stakesin return for debt forgiveness, Shanghai SecuritiesNews reported.Banks are required to transfer debts to institutions, which in turn exchange companies'debts for their equities in a market-oriented approach. According to the guidelines,only companies with good prospects running into temporary problems will qualify.

* entered intoan agreement with Citigroup facilitate up to US$100 million of local currency loans to microfinance institutionsin developing countries in Asia, reported.

* has hired Ravi Raju,Deutsche Bank AG's Asia-Pacifichead of wealth management, reported,citing an unnamed source.

* Singaporeauthorities filed chargesagainst two former BSI Singapore bankers in relation to ongoing money-launderinginvestigations into the scandal-hit 1Malaysia Development Bhd.

* Uberand Standard Chartered Bankhave collaborated to enable the bank's credit cardholders in India, Vietnam, Singapore,Malaysia, Indonesia and the United Arab Emirates to get up to 25% cashback on Uberrides, International Business Times reported,citing the London-based bank.


* WangZhaoxing, a vice chairman at the China Banking Regulatory Commission, said China'soverall banking sector is "healthy" and banks do not need to swap loansfor equity to lower their nonperforming loan ratios, the China Securities Journal reported.Wang noted that the government's loan-for-equities swap program is aimed at cuttingenterprises' debt levels and leverage ratios, and the loans include both normalloans and nonperforming loans.

* ShenMinggao, board chairman of CEBM Group Ltd., said that it is hard for China to achievea GDP growth target of 6.5% in the five years, but the target range between 4% and5.5% is acceptable, Caixin reported. Shen notedthat the rise of China's property prices was mainly due to government's effortsto maintain the country's growth rate at a certain level.

* MengJianmin, vice chairman of China's state-owned Assets Supervision and Administration,said that the loan-for-equities program would help state-owned enterprises engagein reforms and raise productivity, the ChinaSecurities Journal reported.

* DaiBohua, assistant minister at China's Ministry of Finance, said the government willprevent a shift of risks to banks from nonfinancial firms under the debt-for-equityswap program, reported.Dai also noted that the government would introduce comprehensive tax preferentialpolicies to support the program.

* TheChina Insurance Regulatory Commission and Portugal's Insurance and Pension FundsSupervisory Authority signed an agreement on cooperation and technical assistancein the insurance industry, the SecuritiesTimes reported.

* ManyTaiwanese major life insurers cut their insurance policies' interest rates in September,while also cutting agents' commission rates, which is expected to lower the premiumincome of Taiwan's life insurance sector by nearly 25% to NT$91 billion in September,Taiwan's Commercial Times reported.


* has attracted¥50 billion to its new energy infrastructure fund from regional banks and pensionfunds seeking higher returns, Tokyo's TheNikkei reported.The fund targets a total investment of ¥200 billion, which could make it the country'sbiggest infrastructure fund.

* JapaneseFinance Minister Taro Aso said the government is committed to pass pending legislationrelated to the Trans-Pacific Partnership agreement through the current parliamentarysession, The Sankei Shimbun reported.

* SouthKorean banks, savings banks and moneylenders selling accounts receivable to debtcollection agencies will face punishment if their debt collectors break relatedlaws under the Financial Services Commission's revised guidelines, The ChosunIlbo reported.

* SouthKorea's Financial Supervisory Service will increase its scrutiny over banks' effortsto rein in the growth of household debt, TheChosun Ilbo reported.

* has put 79nonfinancial units up for auction Oct. 10, Yonhap News Agency reported.The bank has so far sold off 11 nonfinancial units with 132 remaining in its portfolio.

* Theboard of Mirae Asset Daewoo Co. Ltd.will appoint three co-CEOs to lead South Korea's biggest securities company, makingits official debut at the end of 2016, Yonhap News Agency reported.


* TheFederation of Thai Capital Market Organizations' Investors Confidence Index forOctober went down by 26.19% to 103.84 points, Thailand's Krungthep Turakij reported. Positive factorsinclude fund flow while negative factors include the U.S. Federal Reserve Bank'spolicies.

* is offeringspecial loans to people affected by recent floods in parts of Thailand, Krungthep Turakij reported. Each householdmay borrow up to 50,000 baht and the loan must be paid within five years. The interestrate for the first year is 0%.

* Thailand-basedDhipaya Insurance PCLexpects to start doing business in Cambodia in 2017, subject to obtaining a license,The Nation reported.

* PeainkraiAsawapoka, founder of Wealth Creation International and a founding committee memberof FinTech Club Thailand, said his purchase of shares in Phoenix Insurance Thailandas an individual is unrelated to his company's business, Thailand's Post Today reported.

* IndonesiaLife Insurance Association Chairman Hendrisman Rahim said that the life insuranceindustry's income in the first half increased 42.8% to 99.88 trillion rupiah from69.97 trillion rupiah in the prior-year period, The Jakarta Post reported.

* TheIndonesian Life Insurance Association said that the number of insured citizens inthe country was 56.95 million at the end of the second quarter, lower than the 57.02million people insured in the second quarter of 2015, Kompas reported.

* FitchRatings said that the outlooks on the banking sectors in Malaysia, Indonesia andThailand are negative due to high risks and challenging operating environments acrossthe ASEAN region, Malaysia's New Straits Timesreported.

* Accordingto the State Bank of Vietnam, the country's credit institutions' credit growth willlikely increase to 21.82% from 17.26% in the previous year, Viet Nam News reported.


* India'sfinance ministry will seek Cabinet approval for the listing of state-owned generalinsurers after finalizing details in the next two months, Mint reported,citing "people familiar with the matter." The ministry is working to finalizedetails, including the amount of stake that will be diluted in the proposed IPOs,the people said.

* appointed Rajiv Kumar as managing director and CEO, The Hindu Business Line reported.Kumar was head of corporate planning, customer service, product development andoperations for the company.

* Moody'smaintained its stableoutlook on Pakistan's banking system to reflect the stable deposit base and highliquidity buffers at the banks.


* TheAustralian Securities and Investments Commission said clients can possibly be misledby nonbanks' marketing of mortgage offset products not covered by the government'sguarantee scheme, The Australian reported.

* experienceda system outage Oct. 10, with customers unable to use their bank cards at ATMs orconduct electronic fund transfers at POS terminals. A number of the lender's serviceshave resumed operations, the bank saidthe same day.


MiddleEast & Africa: Barclays Kenyaunit's stock market debut; new board for Angola's BPC

Europe:UK drops Lloyds retail sale; Deutschestill in US talks; ABN AMRO Asia sale

LatinAmerica: Citi names buyers for Brazil,Argentina ops; Caixa looks to transfer state loan guarantees

NorthAmerica: Wells gets another letterfrom senators; community bank attempts takeover in Illinois

NorthAmerica Insurance: Fears ease overMatthew-related loss estimates; MetLife to remain in top 10 global ranking aftersplit

Sally Wang, Jonathan Cheah, JaekwonLim and Santibhap Ussavasodhi contributed to this report.

The Daily Dose has an editorialdeadline of 6:30 a.m. Hong Kong time. Some external links may require a subscription.

Listen: Street Talk Episode 40 - Digital Banks Take a Page Out of 'Mad Men'

Mar. 20 2019 — Some fintech companies are making hay with digital platforms that tout their differences with banks, even though they are often offering virtually the same products. In the episode, we discuss with colleagues Rachel Stone and Kiah Haslett the deposit strategies employed by the likes of Chime, Aspiration and other incumbent players such as Ally Financial, Discover and Capital One. Those efforts conjure up memories of a Don Draper pitch in Mad Men and likely will enjoy continued success.

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Technology, Media & Telecom
Broadband Only Homes Skyrocket In 2018 Validating Top MSOs Connectivity Pivot


The segment stood at an estimated 23.6 million as of Dec. 31, 2018, accounting for 24% of all wireline high-speed data homes.

The following post comes from Kagan, a research group within S&P Global Market Intelligence.

To learn more about our TMT (Technology, Media & Telecommunications) products and/or research, please request a demo.

Mar. 20 2019 — The U.S. broadband-only home segment logged its largest net adds on record in 2018, validating Comcast Corp.'s and Charter Communications Inc.'s moves to make broadband, or connectivity, the keystone of their cable communication businesses.

The size and momentum of the segment also put in perspective the recent high-profile online-video video announcements by the top two cable operators as well as AT&T Inc.'s WarnerMedia shake-up and plans to go toe-to-toe with Netflix in the subscription video-on-demand arena in the next 12 months.

We estimate that wireline broadband households not subscribing to traditional multichannel, or broadband-only homes, rose by nearly 4.3 million in 2018, topping the gains from the previous year by roughly 22%. Overall, the segment stood at an estimated 23.6 million as of Dec. 31, 2018, accounting for 24% of all wireline high-speed data homes.

For perspective, broadband-only homes stood at an estimated 11.3 million a mere four years ago, accounting for 13% of residential cable and telco broadband subscribers.

The once all-powerful, must-have live linear TV model, which individuals and families essentially treated as a utility upon moving into a new residence, increasingly is viewed as too expensive and unwieldy in the era of affordable, nimble internet-based video alternatives. This has resulted in a sizable drop in penetration of occupied households.

As a result, continued legacy cord cutting is baked in and broadband-only homes are expected to continue to rise at a fast clip, with the segment's momentum in the next few years compounded by Comcast's, Charter's and AT&T's ambitious moves into online-video territory.

Note: we revised historical broadband-only home estimates as part of our fourth-quarter 2018, following restatements of historical telco broadband subscriber figures and residential traditional multichannel subscriber adjustments.

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Q4'18 multichannel video losses propel full-year drop to edge of 4 million

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Q4'18 multiproduct analysis sheds more light on video's fall from grace

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Watch: Power Forecast Briefing: As retirements accelerate, can renewable energy fill the gap?

Mar. 19 2019 — Steve Piper shares the outlook for U.S. power markets, discussing capacity retirements and whether continued development of wind and solar power plants may mitigate the generation shortfall.

Learn more about Market Intelligence
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Credit Analysis
2019 Credit Risk Perspectives: Is The Credit Cycle Turning? A Fundamentals View

Mar. 15 2019 — On November 20, 2018, a joint event hosted by S&P Global Market Intelligence and S&P Global Ratings took place in London, focusing on credit risk and 2019 perspectives.

Pascal Hartwig, Credit Product Specialist, and I provided a review of the latest trends observed across non-financial corporate firms through the lens of S&P Global Market Intelligence’s statistical models.1 In particular, Pascal focused on the outputs produced by a statistical model that uses market information to estimate credit risk of public companies; if you want to know more, you can visit here.

I focused on an analysis of how different Brexit scenarios may impact the credit risk of European Union (EU) private companies that are included on S&P Capital IQ platform.

Before, this, I looked at the evolution of their credit risk profile from 2013 to 2017, as shown in Figure 1. Scores were generated via Credit Analytics’ PD Model Fundamentals Private, a statistical model that uses company financials and other socio-economic factors to estimate the PD of private companies globally. Credit scores are mapped to PD values, which are based on/derived from S&P Global Ratings Observed Default Rates.

Figure 1: EU private company scores generated by PD Model Fundamentals Private, between 2013 and 2017.

Source: S&P Global Market Intelligence.2 As of October 2018.

For any given year, the distribution of credit scores of EU private companies is concentrated below the ‘a’ level, due to the large number of small revenue and unrated firms on the S&P Capital IQ platform. An overall improvement of the risk profile is visible, with the score distribution moving leftwards between 2013 and 2017. A similar picture is visible when comparing companies by country or industry sector,3 confirming that there were no clear signs of a turning point in the credit cycle of private companies in any EU country or industry sector. However, this view is backward looking and does not take into account the potential effects of an imminent and major political and economic event in the (short) history of the EU: Brexit.

To this purpose, S&P Global Market Intelligence has developed a statistical model: the Credit Analytics Macro-scenario model enables users to study how potential future macroeconomic scenarios may affect the evolution of the credit risk profile of EU private companies. This model was developed by looking at the historical evolution of S&P Global Ratings’ rated companies under different macroeconomic conditions, and can be applied to smaller companies after the PD is mapped to a S&P Global Market Intelligence credit score.

“Soft Brexit” (Figure 2): This scenario is based on the baseline forecast made by economists at S&P Global Ratings and is characterized by a gentle slow-down of economic growth, a progressive monetary policy tightening, and low yet volatile stock-market growth.4

Figure 2: “Soft Brexit” macro scenario.5

Source: S&P Global Ratings Economists. As of October 2018.

Applying the Macro-scenario model, we analyze the evolution of the credit risk profile of EU companies over a three-year period from 2018 to 2020, by industry sector and by country:

  • Sector Analysis (Figure 3):
    • The median credit risk score within specific industry sectors (Aerospace & Defense, Pharmaceuticals, Telecoms, Utilities, and Real Estate) shows a good degree of resilience, rising by less than half a notch by 2020 and remaining comfortably below the ‘b+’ threshold.
    • The median credit score of the Retail and Consumer Products sectors, however, is severely impacted, breaching the high risk threshold (here defined at the ‘b-’ level).
    • The remaining industry sectors show various dynamics, but essentially remain within the intermediate risk band (here defined between the ‘b+’ and the ‘b-’ level).

Figure 3: “Soft Brexit” impact on the median credit risk level of EU private companies, by industry.

Source: S&P Global Market Intelligence. As of October 2018.

  • Country Analysis (Figure 4):
    • Although the median credit risk score may not change significantly in certain countries, the associated default rates need to be adjusted for the impact of the credit cycle.6 The “spider-web plot” shows the median PD values for private companies within EU countries, adjusted for the credit cycle. Here we include only countries with a minimum number of private companies within the Credit Analytics pre-scored database, to ensure a robust statistical analysis.
    • Countries are ordered by increasing level of median PD, moving clock-wise from Netherlands to Greece.
    • Under a soft Brexit scenario, the PD of UK private companies increases between 2018 and 2020, but still remains below the yellow threshold (corresponding to a ‘b+’ level).
    • Interestingly, Italian private companies suffer more than their Spanish peers, albeit starting from a slightly lower PD level in 2017.

Figure 4: “Soft Brexit” impact on the median credit risk level of EU private companies, by country.

Source: S&P Global Market Intelligence. As of October 2018.

“Hard Brexit” (Figure 5): This scenario is extracted from the 2018 Stress-Testing exercise of the European Banking Authority (EBA) and the Bank of England.7 Under this scenario, both the EU and UK may go into a recession similar to the 2008 global crisis. Arguably, this may seem a harsh scenario for the whole of the EU, but a recent report by the Bank of England warned that a disorderly Brexit may trigger a UK crisis worse than 2008.8

Figure 5: “Hard Brexit” macro scenario.9

Sources:”2018 EU-wide stress test – methodological note” (European Banking Authority, November 2017) and “Stress Testing the UK Banking system: 2018 guidance for participating banks and building societies“ (Bank of England, March 2018).

Also in this case, we apply the Macro-scenario model to analyze the evolution of the credit risk profile of EU companies over the same three-year period, by industry sector and by country:

  • Sector Analysis (Figure 6):
    • Despite all industry sectors being severely impacted, the Pharmaceuticals and Utilities sectors remain below the ‘b+’ level (yellow threshold).
    • Conversely, the Airlines and Energy sectors join Retail and Consumer Products in the “danger zone” above the ‘b-’ level (red threshold).
    • The remaining industry sectors will either move into or remain within the intermediate risk band (here defined between the ‘b+’ and the ‘b-’ level).

Figure 6: “Hard Brexit” impact on the median credit risk level of EU private companies, by industry.

Source: S&P Global Market Intelligence. As of October 2018.

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  • Country Analysis (Figure 7):
    • Under a hard Brexit scenario, the PD of UK private companies increases between 2017 and 2020, entering the intermediate risk band and suffering even more than its Irish peers.
    • Notably, by 2020 the French private sector may suffer more than the Italian private sector, reaching the attention threshold (here shown as a red circle, and corresponding to a ‘b-’ level).
    • While it is hard to do an exact like-for-like comparison, it is worth noting that our conclusions are broadly aligned with the findings from the 48 banks participating in the 2018 stress-testing exercise, as recently published by the EBA:10 the major share of 2018-2020 new credit risk losses in the stressed scenario will concentrate among counterparties in the UK, Italy, France, Spain, and Germany (leaving aside the usual suspects, such as Greece, Portugal, etc.).

Figure 7: “Hard Brexit” impact on the median credit risk level of EU private companies, by country.

Source: S&P Global Market Intelligence. As of October 2018.

In conclusion: In Europe, the private companies’ credit risk landscape does not yet signal a distinct turning point, however Brexit may act as a pivot point and a catalyst for a credit cycle inversion, with an intensity that will be dependent on the Brexit type of landing (i.e., soft versus hard).

1 S&P Global Ratings does not contribute to or participate in the creation of credit scores generated by S&P Global Market Intelligence.
2 Lowercase nomenclature is used to differentiate S&P Global Market Intelligence credit scores from the credit ratings issued by S&P Global Ratings.
3 Not shown here.
4 Measured via Gross Domestic Product (GDP) Growth, Long-term / Short-term (L/S) European Central Bank Interest Rate Spread, and FTSE100 or STOXX50 stock market growth, respectively.
5 Macroeconomic forecast for 2018-2020 (end of year) by economists at S&P Global Ratings; the baseline case assumes the UK and the EU will reach a Brexit deal (e.g. a “soft Brexit”).
6 When the credit cycle deteriorates (improves), default rates are expected to increase (decrease).
7 Source: “2018 EU-wide stress test – methodological note” (EBA, November 2017) and “Stress Testing the UK Banking system: 2018 guidance for participating banks and building societies”. (Bank of England, March 2018).
8 Source: “EU withdrawal scenarios and monetary and financial stability – A response to the House of Commons Treasury Committee”. (Bank of England, November 2018).
9 As a hard Brexit scenario, we adopt the stressed scenario included in the 2018 stress testing exercise and defined by the EBA and the Bank of England.
10 See, for example, Figure 18 in “2018 EU-Wide Stress Test Result” (EBA November 2018), found at:

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2019 Credit Risk Perspectives: Is The Credit Cycle Turning? A Market-Driven View

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