India and Russia were also the only major economies in FY18 and H1FY19 to report moderation in capital adequacy ratios in their respective banking systems.
Banks in India suffered from the weak asset quality and recorded their lowest return on assets (RoAs) since 2008 in FY18 and the first half of the current fiscal, according to Reserve Bank of India’s (RBI) report on ‘Trend and Progress of Banking in India 2017-18’.
RoAs of banks in emerging market economies (EMEs) reflected mixed movements through 2017 and so far in 2018. While banks in Russia, India and China suffered declines, those in Brazil, Mexico and Indonesia posted robust RoAs in 2017 and 2018.
India and Russia were also the only major economies in FY18 and H1FY19 to report moderation in capital adequacy ratios (CAR) in their respective banking systems.
CAR is a measure of a bank’s available capital expressed as a percentage of a bank’s risk-weighted credit exposures. The CAR, also known as capital-to-risk weighted assets ratio (CRAR), is used to protect depositors and promote stability and efficiency of financial systems around the world.
Banks in India and Russia suffered moderation in their CARs on account of rising non-performing loans (NPL) ratios and declines in RoAs.
For banks in major EMEs, NPL ratios remained low, reflecting improving macroeconomic performances, which helped reduce asset quality stress. India and Russia were notable exceptions, with double digit NPL ratios in 2017 that further deteriorated in 2018.
Capital positions remained comfortable for advanced economies. Banks in the UK maintained the highest CAR, notwithstanding a marginal decline from a year ago.