Home Resources Library Strategy Global Banks 2021 Outlook: Banks Will Face The Next Test Once Support Wanes
Global Banks 2021 Outlook: Banks Will Face The Next Test Once Support Wanes

Global Banks 2021 Outlook: Banks Will Face The Next Test Once Support Wanes

This year has been hard for banks. Next year may be even harder. S&P Global Ratings believes 2021 could turn out to be the toughest test for banks since the aftermath of the global financial crisis. Supports that have steadied banks and helped borrowers survive cannot last forever. Their withdrawal will reveal a truer picture of underlying bank asset quality, even as economies start to recover. We likewise note, however, that the dynamics of the current downturn are different. Strong fiscal support for economies is benefiting banks, funding markets are accommodative, and in our view, banks are better equipped than they were in 2009 to withstand economic pressures.

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Description

Our ratings on the banks reflect the long road ahead. Since the onset of the pandemic, we have taken 236 negative rating actions on banks globally (as of Nov. 9, 2020). The majority of these were changes to negative outlooks or placements on CreditWatch negative (77%), though nearly a quarter were downgrades (23%). We have made negative revisions to about half of our 87 Banking Industry Country Risk Assessments (BICRAs). These include revisions to economic trends or industry trends, and in some cases downward adjustments to our country risk assessment itself.

Twelve months ago, before COVID-19 struck, banks faced the new year with relative calm. The scenario for banks heading toward 2021 is a sharp contrast. For many banking jurisdictions, we do not envisage recovery to pre-COVID-19 2019 levels until 2023 or beyond.

Key Takeaways

  • A key risk is that economic disruption from COVID-19 gets worse or lasts longer than our base case of a sustainable economic recovery in 2021 and a widely available vaccine by mid-2021.
  • Additional tests to banks include overhangs from forbearance and other public supports, anticipated higher corporate insolvencies, and stress in property.
  • We believe many banking jurisdictions globally will not recover to pre-pandemic financial strength until 2023 or beyond.

Additional information

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English

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39

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