S&P: Banks in BRIC nations to be under pressure in 1-2 yrs

Following is a release by international rating agency Standard & Poor's in which it says that a slowdown in BRIC (Brazil, Russia, India China) economies could weaken the asset quality and earnings of banks in these countries.

"State ownership and control of a significant part of the banking industry in BRIC countries is a critical rating factor," said Standard & Poor's credit analyst Geeta Chugh.

"Such a link is integral to the economic model of these countries. We expect governments to step in to avoid any abrupt and unexpected deterioration in local banks' financial condition. Government ownership and economic development policies link the credit ratings on the largest BRIC banks to government creditworthiness."

The negative outlook on the banks in India (BBB-/Negative/A-3) reflects the negative outlook on the sovereign rating.

"We believe the asset quality of Indian banks is likely to deteriorate due to the moderation in economic activity, high inflation, high interest rates, and rupee depreciation," said Chugh.

"Small and midsize companies are particularly vulnerable. Stress is also mounting on some highly leveraged large companies," she said.

According to the report, whereas asset quality in Brazil, China, and India is weakening, problem assets in Russia are declining from the peak of the recession despite credit risk in Russia remaining very high.

The earnings of banks in China and Brazil could decline in 2012, but remain satisfactory. Returns in India and Russia in 2012 are likely to be at levels similar to 2011.