Virus seen adding $100 b to credit costs of Asian banks

The coronavirus outbreak will add $100 billion in credit losses to banks in the Asia-Pacific region this year with Chinese lenders bearing the brunt of the damage, according to S&P Global. “Some activity will be lost forever,” Shaun Roache, S&P’s Asia-Pacific chief economist, wrote in a note on Tuesday. “We estimate an income loss of about $211 billion, which will blow a hole in balance sheets across the region.”

The ability of Asian lenders to weather the coronavirus outbreak, which now has claimed more than 3,900 lives worldwide, has larger implications for the global financial system.

Asia accounts for a bigger share of pretax banking profits than any other region, according to a report from McKinsey & Co.

The Covid-19 crisis will likely exert sharp, short-term pressure on Chinese banks, and almost a quarter of the ratings and outlook on the Chinese property sector may come under pressure, S&P said in the report.

Economic impact

“China’s regulatory response so far has been to use the banking system to cushion the economic impact of the epidemic and provide financing to entities crucial to medical support and containment of the virus,” said S&P credit analyst Harry Hu. “Banks may need to sacrifice near-term commercial interests, straining institutions already facing capital pressure.”

While Beijing has asked banks to step up support, it has also acted to mitigate the chaos. Authorities are now allowing the nation’s lenders to delay recognising bad loans from smaller businesses, giving temporary reprieve to trillions of yuan of debt.

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