A recently published report by bond credit rating agency Moody's revealed that Chinese banks have the highest credit profile among BRICS members. BRICS is a group of emerging markets. Its member is Brazil Russia, India, China, and South Africa.
The Moody's report also revealed that Russian banks have the weakest credit profile among the BRICS member. The Moody's report also provided a future outlook for banks among the member countries.
According to Moody's report, Chinese banks scored the highest asset-weighted average or Adjusted Baseline Credit Assessment. The report added that this high score can be attributed to the fact that most of the dominant banks in China are state-owned banks. China banks scored an impressive baa2 rating from Moody's based on its latest report.
While Chinese banks are doing well in terms of credit profile, the same cannot be said to its Russian counterparts which scored the lowest among BRICS members. Moody's gave Russian banks an Adjusted Baseline Credit Assessment of ba3. According to many analysts, Russian scored low on this rating because of their relative weakness in terms of asset quality, profitability, and liquidity.
Among the BRICS nations, Chinese banks scored the highest in terms of quality of assets. Based on Moody's report, Chinese banks' aggregate ratio when it comes to non-performing loans to total loans is 1.5 percent. This is relatively impressive compared to Russian banks which scored an aggregate ratio of 11.8 percent.
When it comes to capitalization, South African banks are the best performers. South African banks recorded an impressive average of 12.4 percent of tangible common equity with regards to risk-weighted assets. On the bottom of the group in terms of capitalization is India which posted a common equity ratio of 8.7 percent.
In terms of profitability, South African banks, along with Brazilian banks are the most profitable of the group. According to analysts, Brazilian banks are supported by loan growth, lower credit costs, and fee income. On the other hand, South Africa is poised to face quite a slowdown in terms of revenue growth along with a rigid cost base.
Indian banks did not perform quite well as its counterparts when it comes to profitability. The Moody's report reveals that returns from Indian banks will still be under pressure until the end of the fiscal year since provisions of various credit losses at large state-owned banks remain large by BRICS standards.
The Moody's report foresees the profitability of Chinese banks to remain stable as the country continues to adopt new measures to improve net interest margins in order to offset pressure on high credit cost and fee income.
