LONDON, Dec 5 (Reuters) – Banks in nations corresponding to Ukraine and Turkey face a “very excessive” threat from restrictions on capital flows, weak worldwide reserves and a excessive degree of overseas forex debt, Moody’s 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, based on the report that covers 39 banking techniques in rising market economies the place overseas trade deposits are 10% or extra of complete deposits.
“Excessive dollarization causes a number of issues when the native forex drops sharply in worth,” based on the report headed by Moody’s vice-president and senior credit score officer Eugene Tarzimanov. “The banks develop into susceptible to a rise in defaults on overseas forex loans granted to unhedged debtors which hurts the banks’ profitability, whereas their liquidity and capital may come underneath strain.”
Native currencies throughout rising markets have weakened towards the U.S. greenback this 12 months because the U.S. Federal Reserve lifted charges amid rising inflation. MSCI’s index of rising market currencies (.MIEM00000CUS) is on target for its sharpest drop since 2015.
Currencies in Ghana, Argentina and Egypt have fallen essentially the most this 12 months, 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 may additionally have an effect on banks. “Altogether 20 banking techniques face excessive or very excessive foreign-currency threat,” 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.
Overseas trade threat is on the lowest in rising markets corresponding to Chile, Ivory Coast and Indonesia.
Reporting by Jorgelina do Rosario, enhancing by Karin Strohecker and Susan Fenton
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