After several months of downgrades, the latest Credit Benchmark consensus data shows improvement across multiple categories of financial counterparts.
In June, May, and April, the data detailed signs of strain in the core plumbing of the financial system.
July’s data, however, has revealed that intermediaries saw more upgrades than downgrades for the first time in several months.
Prime brokers had the highest instance of downgrades last month, with a ratio of 5:1 deterioration-to-improvement; it’s now at a modest 1.3:1, the data finds.
Custodians and sub-custodians moved from a ratio of 3:1 deterioration-to-improvement last month to a current net positive ratio of 0.9:1, but broker dealers changed from 2.5:1 to 0.4:1.
Credit Benchmark notes that most categories of banks also showed improvement. The ratio for Latin American banks showed heavy deterioration at 14:1 last month but is now net positive at 0.4:1.
North American banks and Global systemically important banks moved from 4:1 last month to 0.3:1 and 0.5:1 in the latest update.
Meanwhile, Europe, the Middle East and Africa (EMEA) banks are an exception this month, according to the data.
Although the current ratio of 2.5:1 is an improvement from last month’s 3.1:1, this is still the highest rate of deterioration for any of the financial subsets this month.
David Carruthers, head of research at Credit Benchmark, comments: "The dominance of improvement in consensus opinion is a welcome change after several months of deterioration, particular for entities like prime brokers that are so important to the functioning of the financial system.”
He explains: “EMEA banks were one of the few exceptions this month. Additional downgrades could cause concern for the banks themselves but also for the broader economy that depends on them for lending.”
“Thankfully, banks are in a relatively strong position overall. Improving economic prospects will only make them stronger,” adds Carruthers.
The European Commission projects the region’s economy to expand faster than previously anticipated, with growth of 4.8 per cent this year and the volume of output returning to its pre-crisis level by Q4 2021, one quarter earlier than projected in the spring.
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