According to the ratings agency’s Global Financial Services Outlook 2018: Uncomfortably Numb, stable global economic and financial conditions are expected in the coming year.
However, Standard & Poor’s (S&P) Global Ratings credit analyst Alexandre Birry believes that global instability caused by political events like Brexit could “provoke unexpected market volatility”, disguised by positive growth signals.
“[We] also see increasing downside risks to financial stability, perhaps belying the sanguine signals that markets are currently sending,” the credit analyst said.
Despite the potential risks of unexpected volatility, S&P noted that such risks would be averted if predicted stable global economic growth continues.
“On the upside, if the global economy grows at or beyond the 3.7 per cent pace S&P Global’s economists currently expect, the odds of considerable instability would certainly diminish,” Mr Birry said.
Further, S&P believes that banks are beginning to implement and execute regulatory measures, expecting awareness of environmental, social and governance risks to grow.
S&P recently warned that its credit outlook for Australia’s banks, while currently stable, could change if the recently announced Royal Commission into the sector finds evidence of misconduct.
“If that does come out, then we would obviously need to take that into account, and we may indeed revise some of our current assessments, because that would suggest there are elements of greater risk in the banking system than what we had considered,” S&P Global Ratings’ director of financial institutions and ratings, Sharad Jain, said.
“The other things that such an inquiry may lead to is that if that inquiry is then followed up with some restrictions put in place onto the banks’ behaviour, then that could have some unintended consequences.”