Moody’s sees ‘very excessive’ international trade danger for banks in Ukraine, Turkey By Reuters

LONDON (Reuters) – Banks in international locations corresponding to Ukraine and Turkey face a “very excessive” danger from restrictions on capital flows, weak worldwide reserves and a excessive degree of international foreign money debt, Moody’s (NYSE:) Buyers Service stated in a report on Monday.

Belarus, El Salvador, Nigeria, Kyrgyzstan and Tajikistan full the record of nations additionally uncovered to excessive ranges of greenback deposits, in line with the report that covers 39 banking methods in rising market economies the place international trade deposits are 10% or extra of complete deposits.

“Excessive dollarization causes a number of issues when the native foreign money drops sharply in worth,” in line with the report headed by Moody’s vice-president and senior credit score officer Eugene Tarzimanov. “The banks turn out to be susceptible to a rise in defaults on international foreign money loans granted to unhedged debtors which hurts the banks’ profitability, whereas their liquidity and capital also can come beneath strain.”

Native currencies throughout rising markets have weakened towards the U.S. greenback this yr because the U.S. Federal Reserve lifted charges amid rising inflation. MSCI’s index of rising market currencies is on the right track for its sharpest drop since 2015.

Currencies in Ghana, Argentina and Egypt have fallen essentially the most this yr, the credit score company stated. El Salvador makes use of the U.S. greenback as authorized tender.

Macroeconomic vulnerabilities in Armenia, Georgia, Kenya and Uganda might additionally have an effect on banks. “Altogether 20 banking methods face excessive or very excessive foreign-currency danger,” the report added.

Moody’s sees that worldwide reserves in most rising market economies have fallen since Russia’s invasion of Ukraine, as governments fund present account deficits and defend their currencies towards the U.S. greenback.

International trade danger is on the lowest in rising markets corresponding to Chile, Ivory Coast and Indonesia.