S&P sees global credit losses hitting $909 billion

MANILA, Philippines — Credit losses of global banks are expected to rise to $909 billion this year due to deteriorating asset quality arising from pandemic-related defaults,  according to S&P Global Ratings.

In a report titled “Lower and later: The shifting horizon for bank credit losses,” the debt watcher said this year’s forecast is 1.9 percent higher than last year’s $892 billion.

Last year’s credit losses soared by 64 percent from $544 billion in 2019, ending a multi-year period of benign credit losses for banks globally even as economies continue to recover from the pandemic.

S&P lowered the projected credit losses of global banks to $1.8 trillion for 2020 and 2021 from the previous forecast of $2.1 trillion.

“Our expectations on the timing of these losses have also shifted into 2021 and beyond, reflecting both the ongoing pandemic and the resulting extensions of fiscal and other support to borrowers across much of the world,” it said.

The debt watcher sees higher credit losses for banks around the world, but lower than previously forecast for North America, China, and the rest of the Asia-Pacific.

“We expect major banks’ pre-provision earnings over the period will be able to absorb these credit losses, with some headroom. Still, further upticks could continue to weigh on banks ratings, and inevitably, some banks will incur net operating losses,” S&P said.

For 2022, S&P sees credit losses of global banks slipping by 4.6 percent to $867 billion.

It said credit losses over 2021 and 2022 could still be volatile as the COVID-19 pandemic and responses to it would have large and long-lasting effects on bank asset quality.

“For 2022, we forecast credit losses will decrease slightly to around $870 billion, still well above recent pre-pandemic levels. Indeed, we expect that 2019 marked the end of a multi-year period of benign credit losses for banks globally, even as economies continue to recover from the pandemic,” it said.

For Asia-Pacific alone, S&P sees credit losses hitting $1.57 trillion from 2020 to 2022, of which China would account for more than half of total loans and more than three-quarters of the projected losses.

“Recoveries to pre-COVID-19 levels will likely be slow and uncertain, as in other regions. We expect that credit metrics for the region’s banking systems as a whole may not recover to 2019 levels until 2023,” S&P said.