S&P: Bank outlook turns sharply negative

Via S&P today:

Our outlook on global banks has turned sharply more negative in recent weeks as a result of the significant effects of the coronavirus pandemic, oil shock, and market volatility, says S&P Global Ratings today in a report published on RatingsDirect.

“We took 175 rating actions on banks between the start of the pandemic and May 4,” said S&P Global Ratings credit analyst Alexandre Birry. “Nevertheless, 82% (143 banks) were outlook revisions, while only 18% (31) were downgrades.”

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.

Nevertheless, our outlook bias has turned markedly negative, following the recent downward revision of our central economic forecasts, continued material downside risks to these forecasts, and the potential longer-term impact on banks’ profitability.

“We expect bank ratings to be largely resilient but we cannot rule out further rating actions, including some downgrades, in particular for banks with pre-existing financial strength issues,” said Mr. Birry.

Although emerging market banks are often more exposed than developed market peers, we expect most will face an earnings rather than a capital shock, exacerbated by lower investor appetite and increasing funding cost for systems dependent on external financing, and the oil-price shock for some.

More Aussie downgrades coming.

David Llewellyn-Smith
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