Fitch Ratings notes that although it is premature to say that bank systemic risk is easing, it is showing signs of stabilizing, albeit at a high risk level. In its latest semi-annual 'Bank Systemic Risk' (BSR) report, Fitch says that for the first time since the report was published in 2005, the changes in systemic risk indicators are relatively few and largely reflect technical changes rather than underlying changes in risk.

Credit growth has slowed sharply this year, to 2.5% in nominal terms (year-to-date annual rate) for the median of all Fitch-rated sovereigns, compared to over 15% in 2008. By end-2009, Fitch forecasts a slight pick-up, but to a still subdued 5%, or less than 2% in real terms. The main exception is China, whose forecast real credit growth of 23% will be the fastest anywhere this year, from an already high base, and with one of the biggest increases in credit to GDP. It has yet to trigger even "moderate" signs of macro-prudential risk based on the indicators in this report, but it could do in the next report if credit growth turns out even slightly faster than currently forecast.

The credit/GDP ratio in most countries shows little sign of major fall yet, despite the slowdown in credit growth. Even in some crisis countries such as Iceland and Ireland, the ratio is still rising sharply due to the fall in nominal GDP (a fairly widespread phenomenon this year). Moreover, as the warning signals monitored in this report remain in force for three years once triggered, it will be some time before there is substantial improvement in Macro-Prudential Indicator (MPI) scores.

In the next report, however, it is likely that the US and Canada will improve (to MPI 2), as house prices and real exchange rates respectively peaked relative to trend in 2006 and will drop out of the rolling three-year assessment period in six months' time. In this report there are no deteriorations in MPI scores and the two changes - Chile and Kazakhstan improve to MPI 2 - are due to data revisions.

The changed global financial landscape described by the Banking System Indicator (BSI) and noted in the last report is essentially unchanged. Developed-country banking systems are for the most part either BSI B or C. None are in the BSI A category, the three systems closest being Australia, Canada and Hong Kong. The three weakest systems remain Belgium and Ireland - both BSI D - and Iceland - BSI E. The typical emerging-market (EM) system meanwhile remains either BSI C or D, though a dozen remain in the BSI E category. Systems closest to improving to BSI B are Bermuda and Chile. Among the weakest EM systems, those nearest to improvement are Azerbaijan, Belarus, Estonia and Lithuania.

There are five changes to BSI scores in this report, most driven not by underlying Individual Rating changes but by changes in system composition as banks change in relative size or new banks are added. Luxembourg improves to BSI C and Egypt and Sri Lanka improve to BSI D. The Netherlands and Vietnam deteriorate to BSI C and E respectively.