Credit rating actions on banks slowed in May, S&P says

Credit rating agency expects fewer bank downgrades globally as Covid-19 support measures kick into action

Rating actions on banks globally have slowed over the month of May, S&P said. Reuters. 

S&P Global Ratings said it has taken fewer rating actions on banks globally in May due to measures taken by lenders to protect their balance sheets from the impact of the Covid-19 pandemic.

The agency took 212 credit rating actions on banks from the time the pandemic began up to June 10, Alexandre Birry, S&P Global Ratings’ credit analyst, said. About three quarters of those actions were outlook revisions, with 30 per cent of banks around the world now carrying a negative outlook.

“We expect that second-quarter results will shed more light on the relative impact of the pandemic on banks across the globe, but the full effect on asset quality will likely only become clear much later in the year,” Mr Birry said on Thursday.

Governments around the world have leapt into action to protect their economies from the effects of pandemic-related movement restrictions that have devastated air travel, hurt international trade and triggered the deepest recession since the Great Depression.

Governments and central banks have introduced economic stimulus packages to shore up the private sector. They have also cut interest rates and injected more liquidity to support citizens and businesses hit by the fallout from the coronavirus.

“We continue to expect that bank rating downgrades this year due to the Covid-19 pandemic will be limited by banks’ strengthened balance sheets over the past 10 years, the support from public authorities to household and corporate markets and our base case of a sustained economic recovery next year,” S&P Global Ratings said in its report.

However, the ratings agency said its outlook bias is still markedly “negative” due to the potential long-term impact on banks’ profitability.

Governments and central banks have poured in about $9 trillion (Dh33.05tn) in economic stimulus packages this year to ease the pressure on businesses and stem job losses.

The UAE was the first country in the Middle East and North Africa to unveil fiscal and monetary support packages worth more than Dh282bn. The packages include zero-interest funding from the UAE Central Bank to encourage banks to lend, and measures such as discounted utility bills and waivers of government fees for business and residents.

The International Monetary Fund said the global economy is recovering more slowly than expected from the coronavirus pandemic and will bear lasting scars from the experience.

The IMF is set to release economic growth projections on June 24 that "will be, very likely, worse than what we had" in April, even as "profound uncertainty" remains concerning the forecasts, Gita Gopinath, the IMF's chief economist, said in a video recorded on June 4 and released on Friday as part of the seventh annual Asian Monetary Policy Forum, Bloomberg reported.