Tag: s&p global

Four Indian banks rise in Asian rankings on stock market boom, BFSI News, ET BFSI

Banking & Finance

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Four Indian banks have featured among the 20 largest banks in the Asia-Pacific region in terms of market capitalisation in the third quarter of 2021, according to S&P Global Market Intelligence.

HDFC Bank was ranked seventh with a market cap of $119 billion, a quarter on quarter increase of 6.7 per cent while the next was ICICI Bank at 12th spot, with its market cap rising 11.2 per cent quarter on quarter to $65.5 billion.

The State Bank of India rose two spots to 17th on the list as its market cap rose 8.1 per cent to $54.5 billion. Kotak Mahindra Bank‘s market capitalisation rose 17.5%, the highest on the list.

S&P Global’s banking outlook

The global banking sector will continue to slowly stabilize as the economic rebound gains momentum and as support is gradually withdrawn. Should a re-intensification of risks occur, more support from authorities for the real economy would be required. This in turn would help banks maintain a stabilizing trajectory. Strategies and tactics to combat Covid vary enormously across banking jurisdictions. This includes the progress with vaccination campaigns that affects a range of factors, particularly trade and travel.

Corporate default rates will fall from their COVID-19 peak. However, problematic corporate lending and other exposure will likely continue to strain banks’ asset quality metrics, it said.

Some corporate sectors have experienced no credit deterioration, such as grocery and essential retail, and technology software, while other corporate sectors are recovering sooner than previously expected. Still other sectors, however, such as autos, hotels and airlines won’t likely recover until 2023 or beyond, S&P Global said.

With debt levels at or near record highs, some corporates and governments remain vulnerable to credit deterioration and defaults if income recovers more slowly than expected. This is especially if interest rates rise, S&P Global added.

Indian banks’ outlook

Banks are likely to post over 20 per cent jump in profit in the second quarter with analysts expecting a decent sequential improvement in almost all indicators from loan growth to gross bad loan ratios.

According to Bloomberg estimates, for the 19 lenders — five public sector and 14 private banks – profit would grow 21.7 per cent to Rs 32,075 crore in Q2 year on year.

Private banks are likely to report PPoP growth of 9% YoY (3.8% QoQ) and net profit growth of 14% YoY (17.3% QoQ). Earnings are likely to pick up, led by a recovery in business growth / fee income and a gradual reduction in credit costs.

“Loan growth would pick up, led by revival in economic activity and the opening up of the economy. Demand going into the festive season and commentary around the FY22 outlook would be key monitorables. Retail and SME segment is likely to show strong recovery; though growth in the Corporate segment is likely to remain soft and recovery within this segment would be another monitorable,” according to Motilal Oswal Securities.



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S&P, BFSI News, ET BFSI

Banking & Finance

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Global ratings agency S&P said has said its base case is that the global banking sector will continue to slowly stabilise as the economic rebound gains momentum and as support is gradually withdrawn. Should a re-intensification of risks occur, this will require more support from public authorities for the real economy.

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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Indian banks to feel the effect of Covid second wave long after infections fade: S&P Global

Banking & Finance

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The second wave of pandemic is likely to impact the performance of Indian financial institutions during the first half of the current fiscal, S&P Global Ratings said on Tuesday. Talking about banks in particular, it said that lenders face systemic risk as the country sorts through the aftermath of the Covid second wave.

“The second wave has front-ended weakness in asset quality,” Deepali Seth Chhabria, Credit Analyst with S&P Global Ratings said. Further, she mentioned that financial institutions face a strained first half amid weak collections and poor disbursements. The agency feels that finance companies will likely be more impacted than banks.

Also read: NBFC-MFIs: Sector sees nearly 25% decline in FY21

S&P further said that banks have much to digest in the quarter ahead. Disbursements slowed considerably in April and May. The credit that banks extended, fell by about 1 per cent in the first two months of this fiscal. The drop was largely seasonal—there were similar declines in the same period for fiscals 2018 and 2019. “That said, strains on finance companies can go beyond this seasonal effect. For example, Bajaj Finance in its mid-quarter update said sales volumes for its consumer durables and auto finance businesses in May were just 40 per cent of what the management expected. We believe credit growth in India started improving in June, and will continue to do so,” it said.

Affected sectors

The ratings agency also mentioned that the collection efficiency for a number of finance companies fell by up to 5-15 per cent in April and May, largely due to lockdowns. Lenders catering to prime borrowers were generally less affected. SME borrowers, who comprise about 17 per cent of total loans, and low-income households have been most affected.

Tourism and recreation related sectors, commercial real estate, and unsecured retail loans may contribute to higher non-performing loans (NPLs or NPA). However, “the banking system’s exposure to many of these segments is moderate and should have only a limited effect. Housing finance (excluding affordable housing) and gold loans will likely be less affected compared with financing for micro enterprises or commercial vehicles,” the agency said.

It further noted that banks are better prepared to bounce back from the second wave than they were during the last downcycle. Institutions have continued to raise capital from the equity markets and the government.

Bounce-back

Private sector banks such ICICI Bank and Axis Bank raised equity capital in the last fiscal year, and public sector banks have jumped on this bandwagon. IDBI Bank raised ₹14.4 billion in equity in December 2020. Indian Bank also raised ₹16.5 billion in equity in June. Many other banks have also announced plans to raise capital, including hybrid capital.

The agency said that banks have already created Covid-related provisions of 0.5-1.5 per cent of loans. Additionally, the central bank has allowed banks to use all other floating and counter-cyclical provisions to address NPLs. “The next six months should be defined by the effectiveness of policies to contain long simmering bank-sector strains, with much potential for Covid-related flare-ups,” Geeta Chugh, Credit Analyst with S&P Global Ratings said.

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S&P, BFSI News, ET BFSI

Banking & Finance

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Credit losses for Asia-Pacific banks could reach $585 billion by 2022, or nearly double the pre-Covid level raising credit costs for banks, according to S&P Global.

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,” said S&P.

Moratorium cushions blow

S&P 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.

S&P forecasts that credit losses will remain well below its expected long-term average in most countries despite last year’s economic hardship. Credit losses encompass provisioning for expected bad loans, and generally precede charge-offs, the actual write-down of loans that detract from the balance sheet allowances for credit losses

Extended troubles

S&P said the effect of Covid on credit costs in the country will be extended over several years.

“Given the scale of the supports to banks and borrowers, downside risks will stay elevated.

“Besides moratoriums and fiscal support, temporary lenient regulatory and accounting treatment of stressed borrowers will also be lifted over time. And new waves of Covid remain a threat,” it said.

S&P said Asia-Pacific banks should safely avoid a ‘cliff effect’ even as extensive relief measures are progressively removed.

The report said while China‘s banks has taken much of its pandemic-related pain up front, with large credit losses reported in 2020, the fallout is not quite over.

Given the vast size of the country’s banking system, this translates into big numbers, it said.

The report discussed forecast credit losses for the 12 larger banking systems in Asia-Pacific: Australia, China, Hong Kong, India, Indonesia, Japan, Malaysia, New Zealand, Singapore, South Korea, Taiwan, and Thailand.



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