Global bank credit losses for banks may total $1.8 trillion: S&P

Singapore, February 3: S&P Global Ratings on Wednesday lowered its forecast of credit losses for banks globally at 1.8 trillion dollars in 2020 and 2021, down 15 per cent from its previous estimate of 2.1 trillion dollars in July 2020.

"We expect that final 2020 data will show credit losses of close to 900 billion dollars, a third lower than our previous forecast. And we now forecast a similar level of credit losses in 2021 at around 910 billion dollars -- a rise of 10 per cent from our previous forecast," said S and P Global Ratings' credit analyst Osman Sattar.

"For 2022, we forecast credit losses will decrease slightly to around 870 billion dollars, still well above recent pre-pandemic levels. Indeed, we expect that 2019 marked the end of a multi-year period of benign credit losses for banks globally even as economies continue to recover from the pandemic," he said.Sattar said the revised forecasts also reflect a shift in the timing of these losses which could be spread more evenly across the forecast period. This change reflects the ongoing pandemic as well as ongoing debt moratoria and fiscal support in many cases.

"We expect major banks' pre-provision earnings over the period will be able to absorb these credit losses with some headroom," said Sattar.

"Still, further upticks could continue to weigh on banks ratings and inevitably some banks will incur net operating losses. Moreover, credit losses over 2021 and 2022 could still be volatile and higher than our base case," he added.

S and P Global Ratings has also published its updated ratings component scores for the top 200 banks globally with issuer credit ratings and component scores.