S&P Global Ratings expects the world's largest banking sectors, including more than half of G20s, to recover to pre-Covid-19 levels until 2023, or beyond.
Covid-19 and the oil price shock of 2020 are taking a heavy toll on global banks. S&P Global Ratings has taken 335 negative rating actions globally since the outbreak began, and we anticipate it will be difficult for the financial strength ratings on financial institutions to return to pre-crisis levels.
This is according to report published by S&P Global Ratings titled, "Global Banking: Recovery Will Stretch To 2023 And Beyond."
"The hit on financial institutions globally has been unambiguously negative," said S&P Global Ratings credit analyst Gavin Gunning.
“We have already negatively revised the economic or industry trends underpinning the financial strength of many banking jurisdictions globally. This trend should persist. Further, we have seen negative rating momentum affecting financial institutions in most major banking jurisdictions, indicating that downside risks are to the fore.”
Even for less-affected banking jurisdictions, recovery to pre-Covid-19 levels will unlikely come before end-2022. These jurisdictions include China, Canada, Singapore, Hong Kong, South Korea, and Saudi Arabia.
"Risks remain firmly on the downside for these banking jurisdictions, in our view," said Gunning.
S&P’s negative rating actions since March 1, 2020, to September 7, 2020, include 234 rating actions on banks and 101 rating actions on nonbank financial institutions (NBFIs). Most rating changes are outlook revisions (236, or 70% of total rating actions). Rating downgrades and negative CreditWatch placements account for the remainder.
To estimate the shape of recovery for banks, S&P Global Ratings has analysed 20 of the largest banking systems globally in its report.
Even for those jurisdictions that have been more resilient, our outlook for banking sector credit metrics as well as metrics applicable to individual banks are uniformly weaker.
In 2019, credit losses were near historical lows in almost all the higher-income countries in Asia-Pacific. Years of benign economic conditions have helped the region. “We estimate that the Covid-19 shock to these economies will drive a multifold increase in credit losses. Economic recovery in the subsequent period should ease the credit losses, in our view.”
Pandemic-related loan losses will likely sharply increase for the US and Canadian banking systems in 2020 and 2021. Such losses should tail off thereafter, pending an economic rebound envisaged in S&P’s base case.
Credit losses will likely rise significantly from historically low levels for European banks in 2020, and remain high in 2021. A full economic recovery could take several years under the base case.
Emerging-market banks will likely see a sharp increase in credit losses in 2020. There is potential for a gradual improvement in the following years if economic activity rebounds, as envisaged in our base case. Given the banks' relatively strong profitability, S&P sees some cushion to absorb the anticipated weak performance in the loan portfolio.
Recovery to pre-crisis levels could occur for the Chinese banking system by end-2022. Other emerging markets may recover in 2023 or later. -- Tradearabia News Service