MELBOURNE –The COVID-19 crisis continues to weigh on the credit quality of Asia-Pacific financial institutions, with S&P Global Ratings’ outlook bias in the region tilted firmly toward the negative.
That’s according to “Asia-Pacific Financial Institutions Monitor 2Q2020: COVID-19 Crisis Could Ads $440 Billion To Credit Costs,” a report published by S&P Global Ratings.
“The negative outlook bias primarily reflects the significant recent credit impacts of the COVID-19 pandemic, oil price shock, and market volatility,” said Gavin Gunning, a credit analyst at S&P Global Ratings. “Currently, negative outlooks (about 17 percent of ratings) significantly outnumber positive outlooks (about 3 percent of ratings).”
Gunning said principally influencing their outlook for Asia-Pacific financial institution credit are their macroeconomic forecasts, which have materially worsened in recent months.
“Our recently updated growth forecast for Asia-Pacific in 2020 is now 0.3 percent–barely in the black and well down on our initial forecast for 2020 leading into the calendar year of 4.7 percent. Latest 2020 growth estimates in Asia-Pacific include: China, 1.2 percent; India, 1.8 percent; and Japan, minus 3.6 percent,” Gunning said.
As risks associated with COVID-19, the oil price shock, and significant market volatility take hold, S&P estimate that Asia-Pacific in 2020 will be hit with additional credit costs of about $440 billion.
“From an asset quality perspective, we expect banking systems in China, India, and Indonesia to be the hardest hit noting that other banking systems will also experience credit deterioration, to varying degrees,” Gunning said.
