Global credit rankings agency, Standard and Poor (S&P) estimates that banks around the world will face a combined credit loss of $2.1 trillion by the end of 2021 as a consequence of the coronavirus crisis.
This year’s losses amounting to $1.3 trillion, are more than double of what banks had to face in 2019.
The agency expects close to 60% of the said losses happening in the Asia-Pacific region while North America and Western Europe will double their averages compared to 2019 levels with the highest relative increase.
S&P’s report said, “We estimate that the top 200 rated banks represent about two-thirds of global bank lending. For 2020, we estimate that credit losses for these banks would absorb about 75% of their pre-provision earnings. Under our base case, this ratio improves to about 40% in 2021.”
$1.2 trillion worth of the losses in 2021 will be accounted to the Asia-Pacific region with contributing to 75% of those losses. 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 American region is forecasted to account for an additional $366 billion of the increase, followed by $228 billion in Western Europe, $142 billion in Eastern Europe, the Middle East and Africa and $131 billion in Latin America.
S&P’s report stated that “Should the COVID-19 pandemic 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.”
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