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'Banking sector recovery to take years'
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SME Times News Bureau | 24 Sep, 2020
The path to recovery will be more painful for emerging markets such as
India and the banks' recovery to long-term averages for key asset
quality and profitability ratios will take years, S&P Global Ratings
said.
India, Mexico, and South Africa are among the banking
systems that will be slower to recover to 2019 levels--likely beyond
2023, according to S&P Global Ratings.
Covid-19 and the oil
price shock of 2020 are taking a heavy toll on global banks. "S&P
Global Ratings has taken 335 negative rating actions globally since the
outbreak began, and we anticipate it will be difficult for the financial
strength ratings on financial institutions to return to pre-crisis
levels. We don't expect the world's largest banking sectors, including
more than half of G20's, to recover to pre-Covid-19 levels until 2023,
or beyond," the agency said.
The recovery for some other
jurisdictions will likely be much further out. For India, Mexico and
South Africa, a recovery to pre-Covid-19 levels may not arrive until
after 2023.
India, among these late-exiter banking jurisdictions
are those jurisdictions where Covid-19 and other stresses have already
had a meaningful negative effect.
S&P has already made negative revisions on our BICRAs in these jurisdictions, and on our ratings on banks and NBFIs.
"We
have taken negative rating actions on Indian banks and NBFIs as
operating conditions have deteriorated through the crisis. The country
entered the pandemic with an overhang of high nonperforming assets,"
S&P said.
S&P anticipates there will be much uncertainty
on the recovery pathway. Banking sector recovery will not just depend on
the economic recovery occurring broadly in accordance with the base
case, but also on the nature and extent of the economic damage affecting
firms and households prior to the onset of the economic recovery, and
the extent to which this will hit banks.
"Already, we forecast
credit losses of about $2.1 trillion for 2020 and 2021 for the global
banking sector, spurred by the pandemic," it said.
The hit on
financial institutions globally has been unambiguously negative. "Our
negative rating actions since March 1, 2020, to September 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 per cent of total rating actions). Rating
downgrades and negative CreditWatch placements account for the
remainder," the agency said.
S&P has already negatively
revised the economic or industry trends underpinning the financial
strength of many banking jurisdictions globally. This trend should
persist.
Further, it said that there is negative rating momentum
affecting financial institutions in most major banking jurisdictions,
indicating that downside risks are to the fore. Even for less-affected
banking jurisdictions, recovery to pre-Covid-19 levels will unlikely
come before end-2022. These jurisdictions include China, Canada,
Singapore, Hong Kong, South Korea and Saudi Arabia. Risks remain firmly
on the downside for these banking jurisdictions.
S&P has made
negative revisions for 42 of our 88 Banking Industry Country Risk
Assessments (BICRAs) since the onset of the crisis, including on on
views of economic and industry trends.
"Even for those
jurisdictions that have been more resilient, our outlook for banking
sector credit metrics as well as metrics applicable to individual banks
are uniformly weaker," it said.
To estimate the shape of recovery for banks, S&P Global Ratings has analyzed 20 of the largest banking systems globally.
The
base case assumes that a vaccine is not available until about mid-2021.
The base case considers the ongoing effects of the pandemic, the oil
price shock, and other market stresses on our BICRAs and bank ratings.
These 20 banking jurisdictions are segmented into three groups:
early-exiters, mid-exiters, and late-exiters.
Financial
institutions across these 20 jurisdictions accounted for 195 rating
actions of the 335 negative rating actions globally affecting financial
institutions as of September 7.
Many banking jurisdictions will
only recover in 2023 or beyond. Early-exiter jurisdictions include those
where there has been no hit on the BICRAs to date and limited effect on
financial institutions ratings. For these jurisdictions we estimate
that recovery to pre-Covid-19 status is nearest. Late-exiter banking
jurisdictions include those where BICRAs have already been negatively
adjusted, post-Covid-19. For these jurisdictions we view the recovery to
pre-Covid-19 levels as furthest away.
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Customs Exchange Rates |
Currency |
Import |
Export |
US Dollar
|
66.20
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64.50 |
UK Pound
|
87.50
|
84.65 |
Euro
|
78.25
|
75.65 |
Japanese
Yen |
58.85 |
56.85 |
As on 13 Aug, 2022 |
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