Global bank credit losses nearly US$1.8 trillion, S&P says

S&P expects final 2020 data will show global banks registering credit losses of close to US$900bil, a third lower than its previous forecast.

KUALA LUMPUR: S&P Global Ratings forecasts global bank credit losses of around $1.8 trillion for 2020 and 2021, which is 15% lower than its previous forecast of US$2.1 trillion made in July 2020.

In a statement issued on Wednesday, its credit analyst Osman Sattar said as well as somewhat lower credit losses in aggregate, “our revised forecasts also reflect a shift in the timing of these losses -- we now expect them to be spread more evenly across our forecast period”.

This change reflects the ongoing Covid-19 pandemic as well as ongoing debt moratoria and fiscal support in many cases.

S&P expects final 2020 data will show credit losses of close to US$900bil, a third lower than its previous forecast.

“And we now forecast a similar level of credit losses in 2021, at around US$910bil -- a rise of 10% from our previous forecast.

“For 2022, we forecast credit losses will decrease slightly to around US$870bil, still well above recent pre-pandemic levels, ” it said.

S&P Global Ratings expects 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.

Osman expected 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. Moreover, credit losses over 2021 and 2022 could still be volatile and higher than our base case," he added.

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