Loans are already starting to go sour on the books of many of Asia’s largest banks, and if the coronavirus epidemic persists into the second half of the year, loan losses could become severe.
As more and more banks put aside more and more money to handle these losses, liquidity for actual new lending may risk drying up, which could put further pressure on the region’s economy. Rinse and repeat. A real and present danger for COVID-19 coronavirus impact on the economy in 2020.
Pain for Asian Banks Is Just Starting as Virus Batters Loans
The cost of the deadly coronavirus is starting to add up for banks across Asia.
Lenders from HSBC Holdings Plc to the three biggest banks in Singapore have warned that the virus and related economic slowdown will likely force them to set aside more money for soured loans this year. In China alone, S&P Global Ratings estimates the level of non-performing loans may triple, an increase of $800 billion.
“With dark clouds facing us, we need to be cautious,” Wee Ee Cheong, chief executive officer of Singapore-based United Overseas Bank Ltd. said Friday after the bank forecast an uptick in credit costs due to the virus.
The ability for Asian lenders to weather the coronavirus storm has 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. Inc. While Chinese banks will bear the brunt of the losses from the virus outbreak, foreign lenders with operations in the region also face higher loan losses and lower revenue as cases mount in countries like Japan and South Korea, and big-spending Chinese tourists stay home.
HSBC, which generated half its 2019 revenue in Asia, said in the most extreme scenario, in which the virus continues into the second half of 2020, it could see $600 million in additional loan losses. Banks in Hong Kong, HSBC’s biggest market, have temporarily shut nearly 30% of their branches amid the outbreak that has claimed more than 2,200 lives in China. Other foreign banks with sizable operations in Asia include Standard Chartered Plc. and Citigroup Inc.
Credit Costs […]