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Thursday, September 24, 2020 – 11:03 am
SINGAPORE’s banking system may be among the first to recover to pre-Covid-19 levels, S&P Global Ratings said in a report Thursday.
The banking system of the Republic was identified as an “early exit” with low negative impact regarding the prospects for recovery of banking jurisdictions. The expected recovery will be at the end of 2022.
S&P said early exit jurisdictions include those where to date there has been no impact on the banking industry’s country risk assessments and the effect is limited on financial institution ratings.
Other “early exit” banking systems include China, Canada, Hong Kong, South Korea, and Saudi Arabia. On the other hand, the banking systems that will take the longest to recover to 2019 levels, probably beyond 2023, are India, Mexico and South Africa.
This comes as the Covid-19 pandemic and the 2020 oil price shock take a heavy toll on global banks. S&P said it has taken 335 negatively rated actions globally since the outbreak began.
He does not expect the world’s largest banking sectors, including more than half of the Group of Twenty, to recover to pre-pandemic levels until 2023 or beyond.
Even for jurisdictions that have been more resilient, S & P’s outlook for banking sector credit metrics, as well as metrics applicable to individual banks, are uniformly weaker, he said.
S&P credit analyst Gavin Gunning said the impact on financial institutions globally has been “unequivocally negative.” The credit rating agency has already negatively reviewed the economic or industry trends that underpin the financial strength of many banking jurisdictions globally.
“This trend should continue. Additionally, we have seen negative ratings boost affecting financial institutions in most major banking jurisdictions, indicating that downside risks are at the fore,” S&P said.
For the US and Canadian banking systems, S&P said pandemic-related credit losses are likely to increase dramatically in 2020 and 2021. Such losses should decrease thereafter, pending an expected economic rebound in the scenario. S&P base.
Turning to Europe, S&P said credit losses will likely increase significantly from historic low levels for European banks in 2020 and remain high in 2021. A full economic recovery could take several years under the S&P baseline scenario.
Emerging market banks are likely to see a sharp increase in credit losses in 2020, S&P said. He added that there is potential for a gradual improvement in the following years if economic activity recovers as expected in the S&P baseline scenario.
To estimate how banks will recover, S&P analyzed 20 of the world’s largest banking systems in its report.
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