Global banks face combined loan losses of $2.1 trillion by the end of 2021 as a result of the coronavirus crisis, credit ratings agency, Standard and Poor’s (S&P) Global estimates, with a hit of $1.3 trillion this year more than doubling the 2019 level.
Around 60 per cent of the losses are likely to be in Asia-Pacific S&P said on Thursday, although the highest relative increases – at more than double on average compared with 2019 – will occur in North America and Western Europe.
“We estimate that the top 200 rated banks represent about two-thirds of global bank lending,” a group of S&P’s top analysts said in a new report.
“For 2020 we estimate that credit losses for these banks would absorb about 75per cent of their preprovision earnings. Under our base case, this ratio improves to about 40per cent in 2021,” the analysts added.
Asia-Pacific is expected to account for $1.2 trillion of the losses in 2021, with three quarters of that from China.
In terms of customer loans, the Chinese banking system is approximately the same size as the U.S., Japanese, German, and British banking systems combined, and tends to play a more important role in the supply of credit to the economy.
North America’s regions are forecast to account for a further $366 billion of the increase, followed by $228 billion in Western Europe, $142 billion in Eastern European, the Middle East and Africa and $131 billion in Latin America.
“Should the COVID-19 prove to be worse or last longer than S&P’s base case economic forecasts assume, then a combination of higher credit losses and lower earnings will inevitably hit banks across the world,” S&P’s report said.