KUALA LUMPUR, 12 June 2020 – Rating actions on banks globally have slowed over the past month, with rating outlook bias still markedly negative as a result of the significant effects of the coronavirus (COVID-19) pandemic and the potential longer-term impact on banks’ profitability, said S&P Global Ratings.
In a report titled “How COVID-19 Is Affecting Bank Ratings: June 2020 Update” released recently, S&P Global Ratings credit analyst Alexandre Birry said the agency has taken 212 ratings actions on banks related to COVID-19 and/or the oil shock since the start of the pandemic until June 10.
“Nevertheless, 76% of these were outlook revisions. About 30% of banks globally now carry a negative outlook.”
“We expect that second-quarter results will shed more light on the relative impact of the pandemic on banks across the globe, but the full effect on asset quality will likely only become clear much later in the year,” said Birry.
Birry said the vast majority of bank downgrades to date have occurred in jurisdictions in which the oil shock also contributed materially to expectation of weakened operating conditions for banks or on the back of other sovereign rating actions.
“We continue to expect that bank rating downgrades this year due to the COVID-19 pandemic will be limited by banks’ strengthened balance sheets over the past 10 years, the support from public authorities to household and corporate markets, and our base case of a sustained economic recovery next year,” he said.
However, Birry noted that bank ratings are still anticipated to stay largely resilient for reasons such as the generally strong capital and liquidity position of banks globally at the onset of the pandemic, supported by a material strengthening in bank regulations over the past 10 years and the unprecedented direct support that governments provide to their corporate and household sectors.
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