S&P Global Ratings considered that the COVID-19 pandemic will have a significant and long-lasting impact on the asset quality of banks worldwide. It projected 88 banking systems to post credit losses of $1.3 trillion (tn) in 2020 as a result of the pandemic, compared to losses of $0.6tn in 2019, and forecast the losses to moderate to $0.8tn in 2021. The agency defines credit losses as charges on a bank's income statement that translates to provisions or allowances for the expected losses on its balance sheet, as well as any direct write-offs of loans. It projected credit losses at banks in the Asia Pacific region at $1.3tn, or 59.4% of the total, in the 2020-21 period, followed by losses at banks in North America with $366bn (17.2%), in Western Europe with $228bn (10.7%), in Central & Eastern Europe and Middle East & Africa with $142bn (6.7%), and in Latin America with $131bn (6.1%). It added that credit losses at Chinese banks will account for over 75% the losses of banks in the Asia Pacific region in the covered period. Also, S&P projected the credit losses of top 200 rated banks worldwide to absorb over 75% of their pre-provision earnings in 2020, compared to 30% of earnings in 2019, which shows the banks' limited capacity to absorb a further rise in losses. It considered that the fiscal measures that authorities around the world are implementing to cope with the economic and financial fallouts of the pandemic are essential, but it noted that the premature withdrawal of such measures could deepen the global economic contraction and weigh on the banks' asset quality.
Source: S&P Global Ratings