Covid-19 pandemic: Banks' credit costs may rise to 2.4%, says S&P

The credit losses will remain well below expected long-term average in most countries despite last year's economic hardship

The second Covid wave may push credit costs of the Indian banking system to 2.4 per cent by March 2022, compared to base case of 2.2 per cent, according to Standard and Poor’s (S&P).

 

The pandemic may stall a strong recovery in the economy and credit conditions. In a severe downside scenario, the Indian banking system’s weak loans should rise to about 12 per cent of gross loans. It may thwart banking system profitability.

 

In India and Indonesia, banks have suffered higher asset distress in recent years. The credit losses are set to trend closer to our expected long-term average in the coming years, according to its report Intervention Worked: Credit Losses Set To Decline For Most Asia-Pacific Banks.

 

The credit losses will remain well below expected long-term average in most countries (in Asia-Pacific) despite last year’s economic hardship. Sturdy provisioning so far during the health crisis helps. In addition, the region’s banking asset stress was at historical low levels just before the pandemic struck.