This article presents updates to S&P Global Ratings' views on the 86 banking systems that it currently reviews under its Banking Industry Country Risk Assessment (BICRA) methodology (see the chart below and the tables that follow). We also present government support assessments, as well as economic and industry risk trends, for those banking systems.

Latest BICRA Actions And Reports

Since we last published this report on Jan. 28, 2021, we have revised:

Turkey:

• Our economic risk trend to stable from negative, and our industry risk trend to stable from negative.

Turkey

We have revised our economic risk trend for Turkey to stable from negative. This reflects our view that a more stable macroeconomic environment should limit the risk that Turkish banks' asset quality will deteriorate beyond our expectations. We expect banks' asset quality indicators to deteriorate significantly, with the ratio of nonperforming loans exceeding 10% by 2022. However, we believe that once regulatory forbearance measures are gradually lifted, the strong economic rebound expected in 2021-2022 and recent monetary policymaking decisions should reduce the probability of a more severe deterioration having a sharp impact on the banks' financial profiles. Better-than-expected economic performance and more conventional economic policy reduce the risk that Turkish banks will perform worse than our base case. We think that monetary policy tightening, with the one-week repo rate increased by a cumulative 875 basis points since Sept. 30, 2020, as well as the decision to discontinue credit stimulus, should help Turkey control inflation, reducing balance-of-payments risks, stabilizing the lira, and replenishing foreign currency reserves--and ultimately reducing pressure on banks' asset quality.

We have also revised our industry risk trend for Turkey to stable from negative. A more orthodox monetary policy should also improve foreign investors' sentiment. Turkish banks have maintained access to external funding and been able to roll over most of their external debt, albeit at higher costs. Although declining, banks' reliance on external funding remains high. Net banking sector external debt accounted for about 16% of systemwide domestic loans at the end of 2020. This exposes Turkish banks to developments in global capital markets. We expect that favorable global liquidity conditions and improving confidence in the system will facilitate Turkish banks' access to foreign funding. Reducing dollarization of deposits, which reached a high 54% as of December 2020, might require more time, though, depending on sustained stability of the lira, lower inflation, and adequate returns. A quick and unexpected relaxation of macroeconomic policy could put Turkish banks' performance at risk again.

About BICRAs

The strengths and weaknesses of an economy and banking industry are critical factors that underpin the creditworthiness of a country's financial institutions. We distill this analysis into a single BICRA, "designed to evaluate and compare global banking systems," as stated in our criteria. BICRAs are grouped on a scale from '1' to '10', ranging from what we view as the lowest-risk banking systems (group '1') to the highest-risk (group '10'). The BICRA methodology has two main analytical components: "economic risk" and "industry risk."

A BICRA analysis for a country covers all of its financial institutions that take deposits, extend credit, or engage in both activities, whether we rate them or not. In addition, the analysis considers the relationship of the banking industry to the financial system, and furthermore to its sovereign. For that reason, many of the factors underlying a sovereign rating are important in determining a BICRA.

Our analysis of economic risk of a banking sector takes into account the structure and stability of the country's economy, including the central government's macroeconomic policy flexibility; actual or potential economic imbalances; and the credit risk of economic participants--mainly households and enterprises.

Our view of industry risk factors in the quality and effectiveness of bank regulation and the track record of authorities in reducing vulnerability to financial crises, as well as the competitive environment of a country's banking industry--including the industry's risk appetite, structure, and performance--and possible distortions in the market. Industry risk also addresses the range and stability of funding options available to banks, including the role of the central bank and government.

Part of our review involves an evaluation of governments' tendency to support private banks in countries where we assign BICRAs. Our view of the likelihood of government support may influence our issuer credit rating on systemically important banks in a particular country, according to our criteria (see "Banks: Rating Methodology And Assumptions," published on Nov. 9, 2011).

Latest BICRAs, Components, And Related Assessments

Table 1

Table 2

Table 3

Chart 1a

Chart 2a

BICRA Estimates And Regional Averages

We determine BICRAs for all countries where rated banks are domiciled, but many rated banks have exposures to countries and banking systems with no rated banks. If the aggregate credit exposures to these countries and banking systems where we do not have BICRAs are significant, or if we otherwise determine them to be relevant to our analysis, we perform a standard but simplified BICRA analysis for the purpose of computing risk-adjusted capital ratios (we call these BICRA Estimates). If rated banks' aggregate exposure is not significant, we use a BICRA proxy for the same purpose based on our foreign currency sovereign rating on the jurisdiction (we call these BICRA Proxies). The BICRA Regional Averages calculate the BICRA Group and Economic Risk score, based on the countries within each region, weighted by GDP. (For more information, please see paragraph 12 of Risk-Adjusted Capital Framework Methodology, published July 20, 2017.)

Table 4

Related Criteria And Research

For a fuller understanding of our revised framework for rating banks, including the BICRA methodology, the bank criteria, and other relevant publications, please see the following articles.

Related criteria

• Sovereign Government Rating Methodology And Assumptions, Dec. 23, 2014
• Banking Industry Country Risk Assessment Methodology And Assumptions, Nov. 9, 2011
• Banks: Rating Methodology And Assumptions, Nov. 9, 2011

Related research

• Banking Industry Country Risk Assessment: India, Feb. 24, 2021
• Ratings Affirmed On Two Turkish Banks After BICRA Review, Feb. 16, 2021
• Banking Industry Country Risk Assessment: Finland , Feb. 9, 2021
• Global Banks 2021 Outlook: Banks Will Face The Next Test Once Support Wanes, Nov. 17, 2020
• S&P To Publish Economic And Industry Risk Trends For Banks, March 12, 2013
• Analytical Linkages Between Sovereign And Bank Ratings, Dec. 6, 2011
• S&P's BICRAs Measure Banking Risks For 86 Countries, Nov. 9, 2011
• The Evolving Landscape For Banks Requires A Robust Analytical Framework, Nov. 1, 2011