The report by S&P Global Ratings said that banking systems in emerging market will face 3 key issues in 2021 due to Covid-19 and its aftermath domination on the credit story in the emerging markets:
- Deterioration in asset-quality indicators.
- Volatile geopolitical environment and domestic policy uncertainty.
- The vulnerability to abrupt movements in capital flows.
The Standard and Poor’s (S&P) analyzed the 15 largest banks in emerging markets (EMs) like India, Indonesia, Malaysia, Mexico, the Philippines, Russia, Saudi Arabia, South Africa, Thailand, Argentina, Brazil, Chile, China, Colombia, and Turkey.
As per the report, non-performing assets will continue to rise. The profitability of the banks in emerging markets will be inferior to the historical level of profitability due to lower interest rates and slower economic growth. The tourism and export businesses are more at risk in the challenging environment in this pandemic.
“NPLs (nonperforming loans) and restructured loans will continue to increase over the next few quarters as the true impact of the COVID-19 (coronavirus disease 2019) shock on the banks’ borrowers unfolds,” Nikita Anand, an analyst at S&P Global Ratings said in an e-mail to BusinessWorld.
The real estate sector is also at the risk for emerging market banks. “Although immediate risk appears manageable, the uncertainty and potential long-term impact from the pandemic might bring structural changes to the commercial real estate segment via shifts in consumer preferences towards online shopping, more flexible work arrangements, and cost-cutting measures from consumer-driven businesses,” S&P said.
“We expect exposures to small and medium enterprises (SMEs) will drive asset-quality deterioration, particularly for countries like Turkey, South Africa, India, China, Indonesia, and Thailand,” S & P Said.
As per the S&P report, the Central Bank in the developed emerging markets are likely to keep the exceptionally accommodative monetary policy with intend to stimulate economic activities by lowing the interest rates.
“Widespread immunization, that certain countries might achieve by mid-year, will help pave the way for a return to more normal levels of social and economic activity”, it said.
The rating agency S&P Global Rating will update the assumptions and estimates based on the vaccine timing in assessing the economic and credit implication in the emerging markets in the pandemic.