S and P: Covid-19 effects might quadruple UK bank credit losses in 2020
S&P Global Ratings’ credit loss estimates for UK banks reflect the radically more negative environment as a result of the Covid-19 pandemic. Measures to limit the spread of the virus have resulted in large parts of economic activity grinding to a halt, and returning to a more normal environment will take time.
As noted in a report published today, that is why we expect a sharp economic contraction in 2020, with a 6.5% forecasted GDP decline in the U.K. The consequences–including higher unemployment and corporate failures–will feed through into bank asset quality and higher credit losses. We project a rebound in 2021, with GDP growth of 6.0%, but risks remain skewed to the downside, and the effects of Covid-19 will be evident for long after the crisis subsides.
We acknowledge a high degree of uncertainty about the rate of spread and peak of the coronavirus outbreak. Some government authorities estimate the pandemic will peak about midyear, and we are using this assumption in assessing the economic and credit implications. We believe the measures adopted to contain Covid-19 have pushed the global economy into recession.