Moody’s has cut China’s outlook from “stable” to “negative”.
While reaffirming its current debt rating, the US ratings agency warned that reforms were needed to avoid a downgrade.
Moody’s said the change in outlook was based on expectations that Beijing’s fiscal strength would continue to decline.
The negative outlook comes on the heels of fresh data suggesting China’s economy is continuing to lose steam.
Moody’s said it was concerned over China’s incomplete implementation of much needed reforms.
“Without credible and efficient reforms, China’s GDP growth would slow more markedly as a high debt burden dampens business investment and demographics turn increasingly unfavorable,” the agency said in a note.
“Government debt would increase more sharply than we currently expect.”
Moody’s did confirm China’s current Aa3 rating, saying that there was still time to address the current economic imbalances and implement reforms.
Just one week ago, China sought to assure the global economic community over the strength of its economy.
At the G20 meeting in Shanghai, China’s finance minister Lou Jiwei insisted Beijing could tackle the pressures it is currently facing.
China’s economy, the second-biggest in the world, is growing at the slowest rate in 25 years as it attempts to move from an export-led nation to one led by consumption and services.
The slowdown in China’s economy has created considerable uncertainty in financial markets and has led to sharp falls in commodity prices.
Credit ratings agency Moody’s has decided to downgrade 15 global banks and financial institutions.
In the US, Bank of America and Citigroup were among those marked down.
The UK banks downgraded were Royal Bank of Scotland, Barclays and HSBC. Lloyds also had its rating cut by Moody’s in a separate announcement.
The other institutions that have been downgraded are Goldman Sachs, Morgan Stanley, JP Morgan Chase, Credit Suisse, UBS, BNP Paribas, Credit Agricole, Societe Generale, Deutsche Bank and Royal Bank of Canada.
Moody’s added that it was putting some of the banks on a negative outlook, which is a warning that they could be downgraded again in the future.
Explaining this, it said governments around the world had shown a “clear intent” to reduce their support for banks going forward.
Credit ratings agency Moody's has decided to downgrade 15 global banks and financial institutions
In Friday trading, shares in Royal Bank of Scotland (RBS) were up 0.8%, HSBC had gained 0.6%, and Barclays had risen 0.5%. Lloyds was 1.6% higher.
In France and Germany, Societe Generale was up 2.1%, while shares in Deutsche Bank were flat.
In a statement, RBS responded to its downgrade saying: “The group disagrees with Moody’s ratings change, which the group feels is backward-looking and does not give adequate credit for the substantial improvements the group has made to its balance sheet, funding and risk profile.”
RBS estimated that the downgrade could mean it would need to find an extra £9bn in collateral for its debts.
Lloyds said it believed that the change would have “limited impact on our funding costs and market capacity”.
In the US, Citigroup said it “strongly disagrees” with Moody’s decision.
Of the banks downgraded, four were cut by one notch on Moody’s ranking scale, including HSBC, Royal Bank of Scotland, and also Lloyds.
A further 10 banks had their rating reduced by two notches, including Barclays. Credit Suisse was lowered by three notches.
Moody’s separates the 15 banks into three groupings, relative to its assessment of their resilience to any global financial market turmoil.
It puts HSBC in its strongest “first group”, together with Royal Bank of Canada and JP Morgan.
Moody’s says these banks have “stronger buffers” than many of their peers, and “generally more stable businesses”.
Barclays is in its “second group” of banks which Moody’s says faces “sometimes adverse factors”. Other banks at this level are BNP Paribas and Goldman Sachs.
RBS is in the bottom “third group”, which comprises banks which “have been affected by problems in risk management, or have a history of high volatility”. Other banks in this grouping include Bank of America and Citigroup.
Moody’s rating agency has cut Greece’s credit rating again, citing a risk of default despite a recent debt write-off deal.
Moody’s cut Greece’s rating from “Ca” to “C”, the lowest level on its scale.
The agency said on Friday: “Today’s rating decision was prompted by the recently announced debt exchange proposals for Greece, which imply expected losses to investors in excess of 70%.”
The deal writes off 107 billion Euros ($141.3 billion) of Greece’s debt.
Moody's rating agency has cut Greece's credit rating again, citing a risk of default despite a recent debt write-off deal
Moody’s said the planned debt exchange, which involves private investors of Greek debt writing off much of the 206 billion Euros in Greek bonds they hold, “would constitute a distressed exchange, and hence a default”.
The agency acknowledged that the deal was necessary to help stabilize Greece. But Moody’s said: “The risk of a default even after the debt exchange has been completed remains high. Moody’s believes that Greece will still face medium-term solvency challenges.
“The country is unlikely to be able to access the private market once the second assistance package runs out; and its planned fiscal and economic reforms will still face very significant implementation risks.”
Earlier this week the Standard & Poor’s agency classified Greek debt as in “selective default”.
Privacy & Cookies Policy
Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website. These cookies do not store any personal information.
Any cookies that may not be particularly necessary for the website to function and is used specifically to collect user personal data via analytics, ads, other embedded contents are termed as non-necessary cookies. It is mandatory to procure user consent prior to running these cookies on your website.