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00011 HANG SENG BANK
RTNominal up85.650 +0.100 (+0.117%)
Research Report

06/04/2020 15:39

COVID-19 crisis may add US$300bn to APAC banks' credit costs

[ET Net News Agency, 6 April 2020] The economic storm created by COVID-19 will test the
rating resilience of the region's 20 banking sectors. An additional US$300 billion spike
in lenders' credit costs and a US$600 billion increase in nonperforming assets (NPAs) will
occur in 2020. Negative rating momentum is likely for some Asia-Pacific banks during 2020,
according to a report published today by S&P Global Ratings titled "For Asia-Pacific
Banks, COVID-19 Crisis Could Add US$300 Billion To Credit Costs."
"The resilience of banks' asset quality in 2020 hinges in part on the success of
governments' and regulators' policy responses. These measures are in early stages. Some
have started, some are in planning, and we suspect many more may be in the wings," said
S&P's credit analyst Gavin Gunning.
Asia-Pacific governments, central banks, and supervisory authorities have rolled out
diverse measures to address COVID-19. These include liquidity injections, targeted loans
to affected industries and regions, and policy rate cuts. It also includes support for
banks to provide forbearance to otherwise economically viable households and businesses
sideswiped by COVID-19. The equation underpinning policy responses is simple in theory but
difficult in practice, and always comes at a significant fiscal cost.
"The principal risk we see beyond our base case for nonperforming assets and credit
losses is that the coronavirus will spread faster, further, and for longer," said Gunning.
"This will deepen the economic pain we already anticipate for 2020. Financing conditions
may likewise sour as investors become more risk-averse. This would hit bank credit."
While banks are not as exposed as the corporate sector during the initial stage of the
pandemic, the strain on lenders could ultimately be profound. Banks face a second-order
hit compared with the corporate and household sectors. It's the snowballing effects on
people's movement (tourism, business travel, and education), supply chains, trade, and
commodity prices that will eventually hit bank asset quality, and may disrupt bank credit
ratings.
In absolute dollar terms, the credit rating agency expects China to account for the
lion's share of these new NPAs and credit costs in Asia-Pacific. This is not surprising
given the Chinese banking system dwarfs all other banking systems in Asia-Pacific.
S&P expects the NPA ratio for the Chinese banking sector to increase by about 2% in
2020, and credit losses, to increase by about 100 basis points. The NPA ratio in India is
likely to fare similarly to China's (1.9% versus 2.0%) but the credit costs ratios could
be worse, increasing by about 130 basis points. (KL)

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