Downgrade to banks limited by public authorities support through pandemic: S&P
Mar 12, 2021
Singapore, March 12 : The credit profiles of banks globally will stay largely resilient to repercussions of Covid-19 pandemic because of substantial support and flexibility their systems are receiving from public authorities, S&P Global Ratings said on Friday.
Just 30 per cent of banks S&P rates globally carry a negative outlook or are on credit watch with negative implications, mainly due to rating actions it took close to the onset of pandemic after S&P lowered its economic forecasts.
"The stabilising effect from unprecedented support by public authorities cannot be underestimated. Without it, our view is that banks' credit standing would have been much worse affected," said S&P Global Ratings credit analyst Gavin Gunning.
Nevertheless, even as vaccines are progressively rolled out and the economic rebound takes hold, some negative outlooks on banks will likely endure.
Given that banks have depended to a meaningful extent on governments throughout the downturn, said it will look for confirmation that the recovery has taken hold and banks have 'steadied the ship' before reverting many bank outlooks to stable even if it may review a few more exceptions earlier.
S&P said public authorities will continue to play a key role and will have a highly influential effect on banking sector creditworthiness over the next six to 18 months. They must maintain a delicate balancing act of not withdrawing support too early or alternatively not overshooting. The latter will bring with it a host of other adverse consequences.
As macroeconomic uncertainty decreases, banks' management teams are keen to again satisfy a broader range of stakeholders as the discussions around dividend payments illustrate.
The withdrawal of support measures as the recovery takes hold will likely reveal a truer picture of asset quality and may underpin a shift in lending appetite toward weaker borrowers.
"As a result, the quid pro quo between banks and public authorities will not last forever," said S&P Global Ratings credit analyst Alexandre Birry.
