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Banks In Emerging Markets 15 Countries, Three COVID-19 Shocks

About one-third of banks we rate in emerging markets now have a negative outlook following several rating actions and Banking Industry Country Risk Assessment changes in recent weeks reflecting the shift in their operating environment as a result of the COVID-19 pandemic. We see three channels through which COVID-19 could affect EM banks: deteriorating asset quality; heavy dependence on external funding; or, third, a lack of government capacity to extend support, weaker governance, or heightened likelihood of political or social tensions. In our view, the current shock will affect profitability rather than capital. Profitability in most EM bank systems will decline in 2020 on higher cost of risk and weaker interest revenues.

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