S&P, BFSI News, ET BFSI
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For 11 of the top 20 banking jurisdictions, S&P estimates that a return to pre-Covid-19 levels of financial strength will not occur until 2023 or beyond. For the other nine, it estimates that recovery may occur by year-end 2022.
Strong support
The strong support by authorities for households and corporates over the course of Covid-19 has clearly helped banks, it said.
Lenders were also well-positioned going into the pandemic after banks bolstered their capital, provisioning, funding and liquidity buffers in the wake of the global financial crisis. S&P Global Ratings expects normalisation to be the dominant theme of the next 12 months as rebounding economies, vaccinations and state measures help banks bounce back much more quickly than was conceivable in the dark days of 2020.
“We see less downside risk for banks as economies rebound, vaccinations kick in and banks feel the stabilising effects of state intervention,” said S&P Global Ratings credit analyst Gavin Gunning.
“With no vaccine in October 2020, we believed at the time that 2021 could be a very difficult year for banks. State intervention on behalf of corporates and households — including significant fiscal and monetary policy support — is working and banks have benefited,” said Gunning.
Improving outlook
S&P’s net negative outlook for the global banking sector improved to 1 per cent in June from 31 per cent in October 2020. As at June 25, about 13 per cent of bank outlooks were negative. This is significantly lower than October 2020 when about one-third of rating outlooks on banks were negative.
Credit losses
Credit losses for Asia-Pacific banks could reach $585 billion by 2022, or nearly double the pre-Covid level raising credit costs for banks, S&P Global had said in June.
The credit costs of the Indian banking system may rise to 2.4 per cent by March 2022, compared to a base case of 2.2 per cent, according to the S&P report, “Intervention Worked: Credit Losses Set To Decline For Most Asia-Pacific Banks”.
“In India and Indonesia, where banks have suffered higher asset distress in recent years, the credit losses are set to trend closer to our expected long-term average in the coming years,” S&P had said.
Moratorium cushions blow
S&P had said moratoriums on loan repayments–together with fiscal, monetary, and policy support–have helped cushion the blow to borrowers in Asia-Pacific from the Covid outbreak and containment measures.
Credit losses are set to fall across most Asia-Pacific banking systems over the next two years, partly because targeted assistance to stretched borrowers will likely continue in many places until pandemic-related challenges substantially abate, it had said.
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