LONDON: Among the emerging market BRICS nations - Brazil, Russia, India, China and South Africa - China's banks have the strongest credit profile, said Moody's Investors Service in a report published on Monday.
Russian banks have the weakest profile in the group, it said in its report on the outlook for the banks in these countries.
Moody's said China's banks have the highest asset-weighted average Adjusted Baseline Credit Assessment (BCA) of baa2 mainly thanks to the dominance of large state-owned banks.
By contrast, Russian banks have the lowest Adjusted BCA of ba3, due to their relative weakness in asset quality, liquidity and profitability.
"The operating environment for banks in BRICS nations is generally favourable," said Yaroslav Sovgyra, associate managing director at Moody's.
"While China's expansion will slow moderately, the nation's banks have the lowest ratio of problem loans among the group."
In the group, China's banks have the highest quality of assets. The aggregate ratio of non-performing loans to total loans at the nation's banks is 1.5%. By contrast, the ratio for Russian banks is 11.8%.
In terms of capitalisation, South African banks are strongest, with an average tangible common equity amounted to 12.4% of risk-weighted assets (RWAs) at the end of 2017. At the other end of the spectrum, Indian banks have the weakest capitalisation with a common equity ratio of 8.7%.
South African banks, together with Brazilian banks, are also the most profitable. While Brazilian banks' profitability will be supported by loan growth, fee income and lower credit costs, a slowdown in revenue growth and a rigid cost base will weigh on South African banks' bottom lines.
In profitability, Indian banks are distinctively weaker than others. Their returns will remain under pressure for the rest of the current fiscal year as provisions for credit losses at dominant state-owned banks remain large.
Chinese banks' profitability will remain stable as an improvement in net interest margins offsets pressure on fee income and high credit costs.
