Banks face lower credit losses ahead, report says
Across the 86 banking systems that we cover, we expect credit losses of around $1.8tn over the three years to end-2023, S&P Global Ratings said in a report published today, Global Bank Credit Loss Forecasts: Lower Losses Ahead.
“For 2022, we forecast credit losses of around $585bn, 8% lower than estimated losses of around $635bn in 2021, as economies recover from pandemic-related effects,” S&P Global Ratings credit analyst Osman Sattar said.
“Our forecasts indicate credit cost ratios falling to pre-pandemic levels across most of the world,” he added. Similarly, in 2021 losses in banking systems in North and Latin America returned to, or fell below, pre-pandemic (2019) levels. We expect that their lower level of credit losses will continue into 2022-2023, though we don’t expect a repeat of the substantial level of provision releases in the US in 2021.
We have also revised down our credit loss forecasts for banking systems in Asia-Pacific, Western Europe, the Middle East, and Africa, reflecting the global economic recovery. Unlike in the Americas, however, we don’t expect a return to more benign pre-pandemic credit losses over 2022-2023.
Compared to our earlier forecasts, this improved picture highlights that credit losses are moderating, even though they will likely remain somewhat elevated compared to pre-pandemic lows.
“While pandemic-related risks are receding, other risks may yet yield negative consequences for bank asset quality,” Mr. Sattar said. “These include persistently elevated inflation across much of the world, which could trigger aggressive monetary tightening and market disruption, putting bank borrowers under stress.”
This report does not constitute a rating action.