Emerging market credit quality improving, says S&P

S&P said the biggest concern for the Latin American region is refinancing risk – the risk that banks and investors will be unwilling to extend lending facilities to companies. “Lower-rated firms in the region are grappling with the challenges of weak demand, continued low commodity prices, exchange rate depreciation, high interest rates, and highly limited access to funds at shorter tenors,” S&P said in a report today.

The rating agency added that it has noted an improvement in emerging market credit quality as a whole. “The proportion of firms with either negative outlooks or on ‘credit watch’ with negative implications has fallen to 24% from 28% a year earlier,” S&P added. But the rating agency also said that if war-related uncertainty or weakening economic performance leads to prolonged pessimism in the capital markets of industrialised nations, then emerging market borrowers could be negatively affected.

“The overall tone for corporate credit quality in the emerging markets is still biased towards the negative,” said Diane Vazza, head of global fixed-income research at S&P in New York. “But the distribution is less negative than recorded a year earlier.”

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