Thursday, March 18, 2021/ 01:49 PM / By Fitch Ratings / Header Image Credit: The Dough Roller

Emerging market(EM) banks in the Europe, Middle East and Africa (EMEA) region should seemeaningful increases in reported non-performing loan (NPL) ratios in 2021 withthe expiration of moratoria and loan forbearance programmes, Fitch Ratingssays.

Our new reportWhat Investors Want to Know: Loan Moratoria in Emerging EMEA outlines theextent to which these banks have utilised moratoria programmes and highlightsrisks to asset quality as forbearance measures are withdrawn.

Impaired loanratios saw minimal increases in most EM EMEA markets in 2020, as regulatorsprovided forbearance to banks in respect to classification of loans subject tomoratoria, masking asset quality deterioration. NPLs have yet to increasesharply, as many forbearance measures are still in place or have only recentlyexpired.

However, weexpect NPLs to increase across the region in 2021 as the moratoria programmesroll off and the effect of forbearance on loan classification is withdrawn. Anyfurther extensions of payment holidays would be most likely be limited to themost vulnerable sectors.

Loan moratoriaprogrammes have been extensively used across the EM EMEA region, withsignificant variance in uptake levels. Utilisation has been highest in Georgia,Hungary and Nigeria (where between 40% and 60% of loans were subject tomoratoria at peak levels) followed by South Africa and the UAE (each at closeto 20%). We view the risk of asset quality deterioration as most significant inNigeria and also material in Turkey, Georgia, Hungary, South Africa, the UAEand Qatar.

Loan impairmentcharges increased in 2020 across all markets from the prior year as bankspro-actively increased loan provisions, which is positive for bank credit. Theexpected economic recovery across the region in 2021-2022 should mitigate thenegative impact on asset quality of loan seasoning following the downturn in2020.

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