Melbourne:
The global banking sector is clawing its way back to normalcy, according to a new report by S&P Global Ratings. The strong support by authorities for households and corporates over the course of Covid-19 has clearly helped banks, it said.
Lenders were also well positioned going into the pandemic after banks bolstered their capital, provisioning, funding and liquidity buffers in the wake of the global financial crisis. S&P Global Ratings expects normalisation to be the dominant theme of next 12 months as rebounding economies, vaccinations and state measures help banks bounce back much more quickly than was conceivable in the dark days of 2020.
"We see less downside risk for banks as economies rebound, vaccinations kick in and banks feel the stabilising effects of state intervention," said S&P Global Ratings credit analyst Gavin Gunning.
"With no vaccine in October 2020, we believed at the time that 2021 could be a very difficult year for banks. State intervention on behalf of corporates and households — including significant fiscal and monetary policy support — is working and banks have benefited," said Gunning.
S&P's net negative outlook for the global banking sector improved to 1 per cent in June from 31 per cent in October 2020. As at June 25, about 13 per cent of bank outlooks were negative. This is significantly lower than October 2020 when about one-third of rating outlooks on banks were negative.
S&P said its base case is that the global banking sector will continue to slowly stabilise as the economic rebound gains momentum and as support is gradually withdrawn. Should a re-intensification of risks occur, this will require more support from public authorities for the real economy.
For 11 of the top 20 banking jurisdictions, S&P estimates that a return to pre-Covid-19 levels of financial strength will not occur until 2023 or beyond. For the other nine, it estimates that recovery may occur by year-end 2022.