APAC banks credit losses surge to $865m by 2023: S&P

Credit losses will surpass $400b for 2022 and 2023, respectively.

Asia Pacific banks are headed for a tough time amidst several brewing storms that are also assaulting global banks on several fronts.

"For banks across Asia-Pacific, we now forecast credit losses of about US$425b this year and about US$440b next year. These forecasts are about 23% higher than our earlier forecasts [in February 2022]," S&P Global Ratings credit analyst Gavin Gunning said in a report.

Economic growth prospects are weaker all around, and inflation is rising. Corporate and household leverage is also high, and stress in the property sector is intensifying, S&P Global Ratings said as it warns to brace for higher credit losses in 2023.

A key risk is that S&P’s own current economic base case does not hold, with the emergence of any material economic downside scenario–including higher-for-longer inflation and much weaker economic growth– hurting corporates and households. This, in turn, will hurt banks, S&P warned.

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In China, slowing growth remains a key risk, although mortgage strikes pose a limited direct threat to Chinese banks, comprising just 1.3% of banks’ loan book in a downside scenario.

On the upside, APAC banks’ balance sheets are reportedly in good enough shape to buffer these headwinds. 

“Bank capital has strengthened materially since the global financial crisis, and asset quality is sound. These factors will afford banks some flexibility at current rating levels,” Gunning said.

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Notably, Australia is one of only four where S&P sees positive industry risk trends; whilst Japan’s three megabanks should be able to sustain their improving earnings capacity.