Fitch Ratings says the ongoing illiquid and volatile conditions in global financial markets are continuing to put pressure on bank ratings. In Q108, the negative shift in the ratio of Positive to Negative Outlooks continued, while the number of negative rating actions taken during the quarter remained at a comparatively high level.

According to the latest Fitch quarterly series of "Global Bank Rating Trends" reports, the operating environment for banks in 2008 is likely to remain challenging and further pockets of negative rating actions are possible.

"Some of the major US banks have been hit particularly hard," says Alison Le Bras, Managing Director in Fitch's Financial Institutions Group. "Although measures by the US Federal Reserve have improved short-term funding, several of the major US commercial and investment banks now have Negative Outlooks or Watches."

While Q407 saw the highest level of negative rating actions (69) since the series of publications began, Q108 saw a continuation of the gloomy trend with some 52 negative rating actions. At the same time, the number of Positive Outlooks compared to Negative Outlooks continued to decline, standing at 1.7 to 1 at end-Q108 compared with a peak of around 5 to 1 just one year earlier.

Although the number of negative rating actions in developed markets fell to 41 in Q108 from 48 in Q407, outright downgrades remained historically high at 18. These downgrades were in the developed Americas and Europe. Banks in emerging markets, on the other hand, have fared better to date, despite some exceptions such as in Kazakhstan. Nevertheless, the ratio of Positive to Negative Outlooks in emerging markets declined further during the quarter, suggesting that the more positive rating trend in these markets may be coming to an end.

While globally 78.3% of Fitch's bank ratings still have a Stable Outlook, the number of ratings with a Positive Outlook (10.8%) continues to decrease at the expense of a greater proportion of banks having a Negative Outlook (6.5%).