Singapore, along with China, Canada, Hong Kong, South Korea, and Saudi Arabia are among the banking systems that are likely to recover first from the Covid-19-induced economic downturn, says S&P Global Ratings.
The ratings agency, in a report dated September 23, said that these countries are likely to recover by end 2022.
However, the recovery will not be spread evenly across the globe, with the agency predicting a 2023 recovery for both developed and emerging markets (DMs and Ems) such as the US, UK, most of Western Europe including Russia, Japan, Brazil, Australia, and Indonesia.
Other countries such as India, Mexico, and South Africa are likely to see pre-Covid-19 levels beyond 2023.
The predictions come as S&P Global assumes a base case of an economic rebound in 2021 with the release of a Covid-19 vaccine in mid-2021. The estimates also came after the agency looked at 20 banking jurisdictions who account for 195 rating actions of the 335 negative rating actions globally since Covid-19 began.
The jurisdictions were segmented into three categories: early-exiters, mid-exiters, and late-exiters.
Early-exiters include countries where they have been no hit on S&P Global’s Banking Industry Country Risk Assessment (BICRAs) to date, and has a limited effect on the ratings of its financial institutions.
Late-exiters include those where BICRAs have already been adjusted, post-Covid-19.
Anticipating “much uncertainty” on the pathway to recovery, the ratings agency says recovery will also depend on the damage affecting firms and households.
“Already, we forecast credit losses of about US$2.1 trillion ($2.89 trillion) for 2020 and 2021 for the global banking sector, spurred by the pandemic,” say its analysts.
The ratings agency says it anticipates that it will be “difficult” for the financial strength ratings on financial institutions to return to pre-crisis levels.
“We have already negatively revised the economic or industry trends underpinning the financial strength of many banking jurisdictions globally. This trend should persist,” they write.
“Further, we have seen negative rating momentum affecting financial institutions in most major banking jurisdictions, indicating that downside risks are to the fore,” they add.
The hit on financial institutions around the globe have been largely negative, according to the ratings agency.
“Our negative rating actions since March 1, 2020, to Sept. 7, 2020, include 234 rating actions on banks and 101 rating actions on nonbank financial institutions (NBFIs). Most rating changes are outlook revisions (236, or 70% of total rating actions). Rating downgrades and negative CreditWatch placements account for the remainder”, it says.
This applies to jurisdictions that are supposedly more “resilient”, as the agency’s outlook for banking sector credit metrics, as well as metrics that are applicable to individual banks, are uniformly weaker.
