APAC banks face lower credit losses: S&P

Credit losses in 86 banking systems globally are expected to equal $635b in 2022. 

Banks’ credit losses are expected to gradually go lower and return to pre-pandemic levels as economies recover, reports S&P Global Ratings.

S&P has revised down its expected credit losses from 86 banking systems across the world, including in the Asia Pacific, reflecting the global economic recovery.

The ratings agency expects credit losses across the banking systems it covers to amount to $1.8t for 2021 to end-2023.

"For 2022, we forecast credit losses of around $585b, 8% lower than estimated losses of around $635 billion in 2021, as economies recover from pandemic-related effects," said Osman Sattar, S&P Global Ratings credit analyst.

"Our forecasts indicate credit cost ratios falling to pre-pandemic levels across most of the world," he added. 

Unlike in the Americas, however, Sattar said that they do not expect a return to more benign pre-pandemic credit losses over 2022-2023 for APAC as well as the Middle East, Western Europe, and African regions.

Banks in North and Latin America saw their credit losses fall to below pre-pandemic levels in 2021. S&P further expects that their lower level of credit losses will continue into 2022-2023.

But Sattar warned that whilst pandemic-related risks are receding, other risks may yet yield negative consequences for bank asset quality.

"These include persistently elevated inflation across much of the world, which could trigger aggressive monetary tightening and market disruption, putting bank borrowers under stress,” Sattar said.