This article presents updates to S&P Global Ratings' views on the 85 banking systems that it currently reviews under its criteria "Banking Industry Country Risk Assessment Methodology And Assumptions," published on Dec. 9, 2021, that it uses primarily when applying its methodologies to develop the stand-alone credit profile and issuer credit rating on a financial institution ("Financial Institutions Rating Methodology," Dec. 9, 2021).

We typically update this publication every month to summarize our latest BICRA assessments by group and country (table 1), economic and industry risk scores--summarized in chart 1--and components (table 2), and related assessments (government support assessments by region (table 3) and BICRA scores for estimates and regional averages (table 4). All these variables are current as of time of publication of this article, but some may be amended before the publication of our next monthly update.

Latest BICRA Action And Reports

Since we last published the BICRA update on April 26, 2024, we have done the following:

• Bosnia and Herzegovina: assigned to BICRA Group '8';
• Costa Rica: revised our economic risk trend to positive from stable. We also revised some scores on economic risk-related factors;
• Czech Republic: revised our economic risk trend to stable from negative;
• Israel: revised our BICRA to Group '4' from Group '3', and our economic risk score to '4' from '3'. We also revised some scores on economic risk-related factors;
• Kenya: assigned to BICRA Group '9';
• Spain: revised our industry risk trend to positive from stable; and
• Turkiye: revised our economic risk trend to positive from stable.

Since we last published the BICRA update on April 26, 2024, we also published comprehensive BICRA reports on Argentina, Armenia, Kazakhstan, New Zealand, and Poland.

Bosnia and Herzegovina

We have assigned Bosnia and Herzegovina to BICRA Group '8'. The economic risk score for Bosnia and Herzegovina is '8' and the industry risk score is '7'. The economic risk and industry risk trends are both stable.

Costa Rica

We have revised our economic risk trend for Costa Rica to positive from stable. We expect the banking system's economic imbalances to abate, reflecting controlled asset quality. The country's unemployment rate remains steady, while business confidence is rising, reflected in stable foreign direct investments in the free-trade zones, supporting GDP growth. We consider these factors will help the lending growth during the next few years.

Czech Republic

We have revised our economic risk trend for the Czech Republic to stable from negative. We expect the Czech economy will return to growth in 2024. The disinflation process in the country and ongoing monetary easing will likely contribute to higher household consumption and corporate investments. This improving economic environment will be beneficial to banks. We believe risks to the Czech banking sector are receding. Their high earnings generation capacity and resilient portfolio quality, despite challenging operating conditions over the past 18 months, are proof of structural strengths, in our view.

Israel

We have revised our BICRA for Israel to Group '4' from Group '3', and our economic risk score to '4' from '3'. Subsequent to an increase in confrontation with Iran and the lengthening of the Israel-Hamas war and hostility with Hezbollah, we think the already high geopolitical risks faced by Israel have further increased. Although we still expect a wider regional conflict will be avoided, we see several possible military escalation risks, including a more substantial military confrontation with Iran or a widening of the conflict with Hezbollah at Israel's northern border. Weaker economic prospects increase risks for banks. We expect real GDP growth in Israel will be 0.5% in 2024 and quarterly output will remain below pre-war levels throughout 2024, given the continuing disruption and high uncertainty. While we expect growth will rebound in 2025 by 5%, it remains uncertain whether there could be longer-term scarring for the Israeli economy. An escalation of the conflicts could present additional security and social risks for Israel, having a deeper impact on the domestic economy. We therefore see higher economic risk for the Israeli banking sector.

Kenya

We have assigned Kenya to BICRA Group '9'. The economic risk score for Kenya is '9' and the industry risk score is '9'. The economic risk and industry risk trends are both negative.

Spain

We have revised our industry risk trend for Spain to positive from stable. We forecast that interest rates will start to fall from mid-2024, which will put some pressure on earnings. However, we are confident that Spanish banks will maintain sound returns. Our forecasts show domestic return on equity for Spanish banks at 10.2% in 2024 and 9.2% in 2025. Active hedging strategies and the likely return of lending volume growth from 2025 onward should help smooth the negative effect of repricing. Fees will also likely resume growth, while both operating and credit costs should remain under control.

Turkiye

We have revised our economic risk trend for Turkiye to positive from stable. The economic risk trend is turning positive, in our view, because of the authorities' efforts to reduce inflation from the current elevated level. In our base case, we expect economic imbalances to unwind, curbing demand for credit, moderating real estate prices, and slowing the economy, amid rising portfolio inflows and narrowing current account deficits. As a result, we anticipate Turkish banks will face elevated, but manageable credit losses.

About BICRAs

S&P Global Ratings uses its BICRA economic risk and industry risk scores to determine the anchor for a financial institution, which is the starting point of a rating (see paragraph 7 in the financial institutions criteria). Our BICRA criteria evaluate and compare the relative strength of global banking systems. BICRA scores are on a scale from 1 to 10 (see table 1), with group 1 representing the lowest-risk banking systems and group 10 the highest-risk ones (see paragraph 4 in the BICRA criteria).

A BICRA analysis for a country incorporates the entire country's financial system, taking into account the impact of entities other than banks on the financial system. It also looks at the conditions under which rated and unrated entities operate.

Our analysis of economic risk of a banking sector takes into account the structure, performance, flexibility, and stability of the country's economy, actual or potential imbalances in the economy, and the credit risk stemming from economic participants, mainly households and enterprises.

Our view of industry risk factors in the quality, effectiveness, and track record of bank regulation and supervision, as well as the competitive environment of a country's banking industry, including its risk appetite, structure, risk-adjusted financial performance, and possible distortions in the market. Industry risk also addresses the variety and stability of funding options available to banks, including the role of the central bank and government.

Part of our review involves an evaluation of the capacity and willingness of sovereigns (see table 3) to support failing banks (or nonbank financial institutions where applicable) during a crisis based on their systemic importance, classifying sovereigns into three groups: highly supportive, supportive, and uncertain (see paragraph 225 in the "Financial Institutions Rating Methodology"). Our view of the likelihood of extraordinary government support may influence our issuer credit rating on systemically important institutions in a particular country, according to our financial institutions criteria.

Table 1

Table 2

Table 2

Chart 1a

Chart 2a

We assess the capacity and willingness of sovereigns (see table 3) to support failing banks (or nonbank financial institutions where applicable) during a crisis based on their systemic importance, classifying sovereigns into three groups: highly supportive, supportive, and uncertain (see paragraph 225 in the "Financial Institutions Rating Methodology").

Table 3

BICRA Estimates And Regional Averages

Countries for which we do not perform BICRAs are assigned estimates or proxies (depending on the magnitude of rated entities' aggregate exposure to issuers in these jurisdictions) for the purpose of computing risk-adjusted capital ratios. These estimates are made using a simplified BICRA analysis for jurisdictions that rated banks have significant aggregate exposure to--typically of US$5 billion or more (across all the entities we rate). We may also perform a BICRA estimate if rated banks' aggregate exposure is not significant, but we consider it appropriate to assign an estimate. Our BICRA proxies are usually calculated for jurisdictions for which global exposure is not very significant (i.e., typically below US$5 billion). The proxies are based on our foreign currency sovereign rating on the country for which we estimate the BICRA and economic and industry risk scores (see paragraph 12 in "Risk-Adjusted Capital Framework Methodology," April 30, 2024). The BICRAs, economic risk scores, equity market groups (see paragraph 125), and long-term foreign currency sovereign credit ratings that we assign to groups of countries and to regions represent the GDP-weighted average of BICRAs, economic risk scores, equity market groups, and long-term foreign currency sovereign credit ratings on the countries in these groups and regions (see paragraph 151 in "Risk-Adjusted Capital Framework Methodology").

Table 4

Related Criteria And Research

Related Criteria

• Risk-Adjusted Capital Framework Methodology, April 30, 2024
• Financial Institutions Rating Methodology, Dec. 9, 2021
• Banking Industry Country Risk Assessment Methodology And Assumptions, Dec. 9, 2021
• Sovereign Rating Methodology, Dec. 18, 2017

Related Research

• Banking Industry Country Risk Assessment: Kazakhstan, May 28, 2024
• Bulletin: Bosnia and Herzegovina Placed In Banking Industry Country Risk Assessment Group '8', May 27, 2024
• Bulletin: Costa Rica's Banking Industry Country Risk: Economic Risk Trend Revised To Positive On Stabilizing Asset Quality, May 23, 2024
• Banking Industry Country Risk Assessment: Poland, May 17, 2024
• Banking Industry Country Risk Assessment: Armenia, May 16, 2024
• Czech Banking Sector Will Benefit From Receding Economic Risks; Ceska Sporitelna Outlook To Stable From Negative, May 16, 2024
• Banking Industry Country Risk Assessment: New Zealand, May 14, 2024
• Banking Industry Country Risk Assessment: Argentina, May 10, 2024
• Turkish Banks' Economic Imbalances Expected To Unwind As Economy Gradually Rebalances, May 10, 2024
• Various Rating Actions On Israeli Banks On Increased Geopolitical Risks; All Outlooks Negative, May 2, 2024
• Outlooks On Six Spanish Banks Revised To Positive On Stronger Profitability, April 29, 2024
• Banking Industry Country Risk Assessment: Kenya, April 11, 2024
• Global Banks Outlook 2024: Forewarned Is Forearmed, Nov. 15, 2023
• Global Banks Country-By-Country Outlook 2024: Forewarned Is Forearmed, Nov. 15, 2023
• S&P To Publish Economic And Industry Risk Trends For Banks, March 12, 2013