Also ranked among the list of lowest risk countries are United Arab Emirates, Malaysia and Slovakia, according to the Banking Sector Risk Rankings for 33 emerging markets conducted by the U.S.-based economic forecasting and financial analysis company.

The report said the banking sectors of Saudi Arabia, Taiwan, Arab Emirates and Malaysia have the greatest prospects for stability thanks to their high capital levels, sufficient liquidity, adequate bank management and prudent regulatory environment.

“Our strong rating for these countries carries a stable outlook with no significant deterioration of their present status expected in the near-term,” the report stated.

On the other hand, the report warned of the highest risk of banking sector instability in Ukraine, Hungary, Nigeria, Iran and Venezuela.

While the banking sectors in Venezuela, Iran and Nigeria suffer from strong political influence and unfavorable economic policies, Hungary and Ukraine see very high foreign currency borrowing by banks and on-lending to unhedged domestic customers, the report said.

The report concluded that the global financial crisis has had relatively limited direct effect on banking stability in most emerging markets thus far, but pressures are starting to mount and the outlook has turned negative for the banking sectors of a number of major emerging economies.

According to Toby Wight, manager of Global Insight’s Banking Risk Service, strong economic growth has contributed to rapid credit expansion in many emerging markets over the past several years, causing questionable credit risk assessment practices and asset price inflation.

“These risks are compounded, in many instances, by high levels of non-performing loans, poor financial sector regulation, and the limited extent of economic reforms, all of which have further negative implications of bank stability,” Wight said.

For emerging markets in Asia, the report gave a negative outlook for China, Vietnam, India and Pakistan.

It said Chinese and Vietnamese banking sectors present high potential for instability due to excessive political influence and poor risk assessment and banking practices, while India and Pakistan have moderate levels of instability as a result of inadequate credit risk assessment capabilities and banking practices.

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