Brazil’s Lava Jato corruption scandal continues to make headlines this week, though the impeachment proceeding against President Dilma Rousseff was shelved as Moody’s threatened a downgrade last week.
Advertisement
Fitch also said, the key downside risks were Chinese growth and United States interest rates, as rapid credit growth and the accumulation of high private-sector debt since 2008 has made some countries across the region sensitive to a major change in economic conditions.
Fitch Ratings cut Brazil’s credit to junk status Wednesday, the second of the big three agencies to rip away the nation’s hard-won investment grade status and igniting fears that the recession enveloping Latin America’s biggest economy will last longer than expected. “Brazil was cut to junk as it should be”.
“With respect to the outlook on ratings, we have a stable outlook on the overwhelming majority except Mongolia and the Philippines [negative and positive, respectively]”, Fitch said.
At the time, analysts told Anadolu Agency that a second “junking” could trigger a selloff in Brazilian assets by some investors, including pension funds, which may be legally obliged to offload such bonds once two separate agencies rate a country in speculative territory. Malaysian banks have a loan-to-deposit ratio of 90.4% as at October 2015, while the liquidity coverage ratio stands at 119% as at September.
It said earnings and capital buffers built up in recent years meant that most banking systems started from a position of strength going into this weaker economic backdrop. Interest-rate swaps maturing in January 2017, a gauge of expectations for borrowing costs, soared 0.17% point to 16.15. Even before Fitch’s announcement, Brazil’s real and stocks were leading global declines on speculation that the government will lower next year’s budget target, underscoring its inability to shore up the country’s finances. The Ministry also said that it is working in tandem with the federal government to address existing fiscal imbalances.
Gross domestic product (GDP) growth has averaged 5.6% for this year’s first three quarters, slower than the 5.9% seen in the comparable 2014 period and well below the government’s 7-8% target for the year.
Advertisement
Following the downgrade, Finance Minister Joaquim Levy said on Wednesday that losing investment grade is “serious” and shows the government has not done everything that needs to be done.
