LONDON (S&P Global Ratings) July 11, 2024--Across the 87 banking systems that S&P Global Ratings covers, we expect credit losses of more than $1,667 billion over the two years to end-2025. This represents an annual rise in losses of $82 billion (11%) in 2024, and a further, more modest rise of $10 billion (1%) in 2025. (See "Global Banks: Our Credit Loss Forecasts: Asset Quality Is Normalizing," published today.)
"We estimate that banks' credit cost ratios--credit losses as a proportion of customer loans--will average around 80 basis points a year over the two years to end-2025," said S&P Global Ratings credit analyst Osman Sattar.
While that represents a deterioration in the ratio compared with the average of 73 basis points over the three years to end-2023, we see this as a normalization of credit costs rather than an indicator of significant or widespread asset quality problems.
In addition, our estimates indicate that credit losses would need to be more than 5x higher than we forecast before they would deplete bank capital rather than earnings.
The downside risks to our forecasts have receded, but remain significant. The still-high levels of many sovereigns' indebtedness diminish their capacity to support their economies, exposing banks more directly to borrowers facing repayment stresses.
Falling commercial real estate prices across much of the world could further expose banks to losses--both directly, from their exposure to these segments, or indirectly, through lower household or corporate confidence further slowing economic activity.
"Under stress, we see credit losses as more likely in banks' commercial real estate, unsecured retail, and small and midsize enterprise lending portfolios," said Mr. Sattar.
This report does not constitute a rating action.
The report is available to RatingsDirect subscribers at www.capitaliq.com. If you are not a subscriber, you may purchase a copy of the report by emailing research_request@spglobal.com. Ratings information can also be found on S&P Global Ratings' public website by using the Ratings search box at www.spglobal.com/ratings. Alternatively, call S&P Global Ratings' Global Client Support Line (44) 20-7176-7176.
| Primary Credit Analyst: | Osman Sattar, FCA, London + 44 20 7176 7198; osman.sattar@spglobal.com |
| Secondary Contacts: | Brendan Browne, CFA, New York + 1 (212) 438 7399; brendan.browne@spglobal.com |
| Mohamed Damak, Dubai + 97143727153; mohamed.damak@spglobal.com | |
| Cynthia Cohen Freue, Buenos Aires + 54 11 4891 2161; cynthia.cohenfreue@spglobal.com | |
| Gavin J Gunning, Melbourne + 61 3 9631 2092; gavin.gunning@spglobal.com | |
| Elena Iparraguirre, Madrid + 34 91 389 6963; elena.iparraguirre@spglobal.com | |
| Ming Tan, CFA, Singapore + 65 6216 1095; ming.tan@spglobal.com | |
| Natalia Yalovskaya, London + 44 20 7176 3407; natalia.yalovskaya@spglobal.com |
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