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00012 HENDERSON LAND
RTNominal down28.300 -0.450 (-1.565%)
Research Report

15/07/2020 17:44

COVID-19 drives downside risks for Asia-Pacific banks

[ET Net News Agency, 15 July 2020] Risks for Asia-Pacific banks are firmly on the
downside, S&P Global Ratings said today. The credit rating agency took 50 negative rating
actions on lenders in the second quarter of 2020, and it may yet downgrade more
institutions.
S&P's ratings on lenders are clearly linked to the region's economic health, and it only
sees Asia-Pacific GDP trends normalizing by 2023, at the earliest, according to "Top 60
Asia-Pacific Banks: COVID-19 Drives Downside Risks As Credit Losses Jump And Earnings
Fall," an article published today by S&P.
Asia-Pacific will lose US$2.7 trillion of economic output over 2020 and 2021, hitting
the performance of banks in the region. The main risks are that the pandemic lasts longer
and is more severe than S&P now estimated and that no vaccine or treatment will be
available before the second half of 2021.
"The extent of defaults from borrowers, and banks' credit losses, will become clearer
when governments unwind fiscal support, and banks end their loan repayment moratoriums,"
said Sharad Jain, a credit analyst at S&P. "We expect most institutions in the region will
show a multifold rise in credit losses and a sharp drop in earnings in the next two to
three years due to the COVID-19 induced economic downturn," he added.
In S&P's base case, the agency expects that most banks in Asia-Pacific will absorb the
hits from COVID-19, and start to recover by the end of 2021. Nevertheless, a more severe
or prolonged hit to the economies than its current baseline would almost certainly push
banks' credit losses higher, drive their earnings lower and amplify other risks. High
private sector indebtedness and still high asset prices in many countries may have also
set up some countries for a disorderly correction.
In the report, S&P examines the implications of the pandemic and attendant economic
downturns for Asia-Pacific's top 60 banks, breaking out a short comment for each
institution. (KL)

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