THE Asia-Pacific banking industry is seen dealing with more “downside risks” in the last quarter of 2020 as economic recovery to pre-pandemic levels remains up in the air, S&P Global Ratings said.
According to S&P Credit Analyst Gavin Gunning, the Asia-Pacific’s economic recovery is expected to be slow and uncertain, like in other regions, which is affecting the banking sector as well.
“A banking sector revival will not just depend on the economic recovery occurring broadly in accordance with our base case,” Gunning said in a statement on Monday. “Also key is the nature and extent of the economic damage affecting firms and households prior to the onset of the economic recovery, and the extent to which this will hit banks.”
The credit rating firm said it expects the Asia-Pacific economies to contract by 2 percent this year and bounce back by 6.9 percent in 2021. Still, the region is seen to remain below 5 percent of the pre-Covid level by end-2021.
S&P said that the employment situation is a key indicator of the recovery strength, which is only expected to become normal again by 2022 at the earliest.
Earlier this month, S&P said that the Philippine banking sector is expected to book more distressed assets this year.
The industry’s nonperforming assets, including restructured loans, as a percentage of total borrowings portfolio is estimated to reach 5.5 percent to 7.5 percent this year amid the pandemic.
As of August, the distressed assets ratio of the banks stood at 4.6 percent.
“In our opinion, weak economic activity and tough employment conditions will affect the Philippine banking sector’s asset quality, earnings and capitalization over the next two years,” S&P explained.
The debt watcher is expecting the Philippine economy to shrink by 9.5 percent in 2020 and recovery of 9.6 percent next year.
S&P also revised its outlook on Bank of the Philippine Islands and Security Bank Corp. to negative from stable due to risks in asset quality.