The worldwide assault on bank profits will exceed US$2.1 trillion over 2020 and 2021, S&P Global Ratings concludes in a lengthy assessment of the COVID-19 pandemic and its “large and long-lasting effects on bank asset quality.”
The COVID-19 pandemic and responses to it “will have large and long-lasting effects on bank asset quality,” S&P said.
“Across the 88 banking systems S&P Global Ratings covers, we forecast their credit losses will be about US$1.3 trillion in 2020 - more than double their 2019 level of US$600 billion.
“We expect losses in 2021 will fall back to a more manageable US$800 billion, though this would still be more than one-third above the 2019 level.”
S&P suggest banks and their boards be upfront and resist temptation to minimise loss reporting and bolster profits.
“Our forecasts are based on our analysts' estimates for nonperforming loans and related provisioning. Regulatory forbearance, jurisdiction-specific rules, or bank management decisions regarding slowing the pace of loss recognition, will affect the timing and recognition of credit losses in banks' financial reporting.
“In our view, and as the aftermath of the 2008-2009 financial crisis showed, delays in the recognition of credit losses by banks, or a lack of transparency in reporting such losses, could undermine investor confidence in banks and may delay the path to recovery for some countries.”
In comments on Australian banking, S&P repeated its forecast for credit losses “to rise to about six times those in 2019 before easing.”
S&P forecast that the annual credit losses for Australian banks “will peak at about 85 basis points of gross loans by 2021.”
In 2022, S&P say credit losses will ease to about 50 bps of gross loans.
For banking in New Zealand, S&P also repeated its view that “credit losses will rise to about 12 times those in 2019.
“We forecast that annual credit losses will peak at about 80 bps of gross loans by fiscal 2021. We expect that credit losses will ease to about 50 bps of gross loans and advances in fiscal 2022.”