COVID-19 will stretch recovery in Indian banking system to 2023, says S&P

Global ratings agency S&P Global Ratings has said that banking systems in emerging markets like India, Mexico and South Africa will see a slower recovery to the 2019 levels and full recovery might not be possible before 2023. S&P's latest report, 'Global Banking: Recovery Will Stretch To 2023 And Beyond', cites that both COVID-19 and the oil price shock of 2020 have taken a heavy toll on global banks.

"S&P Global Ratings has taken 335 negative rating actions globally since the outbreak began, and we anticipate it will be difficult for the financial strength ratings on financial institutions to return to pre-crisis levels. We don't expect the world's largest banking sectors, including more than half of G20's, to recover to pre-COVID-19 levels until 2023, or beyond," the rating agency said.

S&P said it has already negatively revised the economic or industry trends underpinning the financial strength of many banking jurisdictions globally. "This trend should persist," it added. Even many prominent banking systems may not recover until 2023, including the US, UK, France, Germany, Spain, Italy, Japan, Australia, Brazil, Indonesia, and Russia.

Also read: Massive jump in bank frauds; up 2.5 times to Rs 1.85 lakh crore in FY20

Even for less-affected banking jurisdictions like China, Canada, Singapore, Hong Kong, South Korea and Saudi Arabia, the recovery to pre-COVID-19 levels will unlikely come before end-2022, it said.

India, Mexico and South Africa will see much delayed recovery. "The recovery for some other jurisdictions will likely be much further out. For India, Mexico and South Africa, a recovery to pre-COVID-19 levels may not arrive until after 2023," S&P said.

Also read: Rebooting Economy 30: Rural India in far deeper crisis than what govt data claims

S&P said the hit on financial institutions globally has been unambiguously negative. S&P's negative rating actions since March 1 to September 7 include 234 rating actions on banks and 101 rating actions on non-bank financial institutions (NBFIs). "Most rating changes are outlook revisions (236, or 70% of total rating actions)," it said.

To estimate the shape of recovery for banks, S&P Global Ratings analysed 20 largest banking systems globally. The agency analysed macro base-case scenario if a vaccine is not available until mid-2021. Financial institutions in these 20 jurisdictions accounted for 195 rating actions of the 335 negative rating actions globally as of September 7.

S&P predicts early-exiter jurisdictions will be those where there has been no hit on our BICRAs (banking industry country risk assessment) to date and has been a limited effect on financial institutions ratings. And, late-exiter include those where BICRAs have already been negatively adjusted, post-COVID-19, it said.

Also read: Moody's downgrades SBI's standalone profile on asset quality, profitability concerns