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Singapore banking system may be among first to recover: S&P

Singapore's banking system may be among the first to recover to pre-Covid-19 levels, S&P Global Ratings said in a report on Thursday.

SINGAPORE'S banking system may be among the first to recover to pre-Covid-19 levels, S&P Global Ratings said in a report on Thursday.

The Republic's banking system was identified as an "early-exiter" with low negative impact when it comes to recovery prospects for banking jurisdictions. Expected recovery will be by the end of 2022.

S&P said early-exiter jurisdictions include those where there has been no hit on its banking industry country risk assessments to date and limited effect on financial institution ratings.

Other "early-exiter" banking systems include China, Canada, Hong Kong, South Korea and Saudi Arabia. On the other hand, banking systems that will be slower to recover to 2019 levels - likely beyond 2023 - are India, Mexico and South Africa.

This comes as the Covid-19 pandemic and oil price shock of 2020 take a heavy toll on global banks. S&P said it has taken 335 negative rating actions globally since the outbreak began.

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It does not expect the world's largest banking sectors, including more than half of the Group of Twenty's, to recover to pre-pandemic levels until 2023 or beyond.

Even for jurisdictions that have been more resilient, S&P's outlook for banking sector credit metrics as well as metrics applicable to individual banks are uniformly weaker, it said.

S&P credit analyst Gavin Gunning said the hit on financial institutions globally has been "unambiguously negative". The ratings agency has already negatively revised the economic or industry trends underpinning the financial strength of many banking jurisdictions globally.

"This trend should persist. Further, we have seen negative rating momentum affecting financial institutions in most major banking jurisdictions, indicating that downside risks are to the fore," S&P noted.

For US and Canada banking systems, S&P said pandemic-related loan losses will likely sharply increase in 2020 and 2021. Such losses should tail off thereafter, pending an economic rebound envisaged in S&P's base case.

As for Europe, S&P said credit losses will likely rise significantly from historical low levels for European banks in 2020 and remain high in 2021. A full economic recovery could take several years under S&P's base case.

Emerging-market banks will likely see a sharp increase in credit losses in 2020, S&P said. It added there is potential for a gradual improvement in following years if economic activity rebounds as envisaged in S&P's base case.

To estimate the shape of recovery for banks, S&P analysed 20 of the largest banking systems globally in its report.

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