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Banks to see $1.68t of credit losses in 2024-2025

Banks globally are expected to lose $824b in credit losses in 2024.

Banks globally are forecasted to log $1.68t in credit losses over the next two years, as weaker economic growth and high interest rates progressively contributed to more losses.

In its latest outlook report, S&P Global Ratings pencilled in $824b in credit losses for global banks in 2024, a 6.3% increase compared to 2023. Losses are expected to rise by another 4.2% in 2025, with S&P expecting US$859b in credit losses.

The good news is that most banks should be able to contend with higher credit losses. S&P estimates that credit losses would need to be more than 5 times higher than it forecasted before losses will deplete bank capital rather than earnings.

A “watershed” moment
S&P noted the ongoing importance of funding and liquidity management for banks, especially in light of a series of bank failures in 2023 as well as the acquisition of Credit Suisse by Swiss rival UBS.

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“2023 was somewhat of a watershed. Contagion concerns for banks hit levels not seen since the 2007-2008 global financial crisis (GFC) following US regional bank failures and the Swiss government-engineered acquisition of Credit Suisse by UBS in March 2023,” the ratings agency wrote in its report.

Nine months later, the potential for contagion concerns to affect banks' funding and liquidity profiles has decreased considerably, S&P added.

“Because of their typically "lend long and borrow short" asset and liability management profiles, banks can be highly sensitive to confidence levels. The underlying causes of the U.S. regional bank sector difficulties and Credit Suisse were primarily idiosyncratic, rather than endemic. This primarily explains why the malaise affecting these banks did not spread more broadly,” S&P added.

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