Maintaining strong asset quality during 2020 has been a Herculean feat. Even the most highly capitalised banks in Asia — some of the biggest in the world by Tier 1 capital — have felt the pinch thanks to the economic slowdown predicated on the Covid-19 pandemic.
This impact has hit like a sledgehammer. In a note published in July 2020, Standard & Poor’s (S&P) estimated $2.7tn of economic output will be lost across Asia in 2020 and 2021 as a result of the pandemic. The ratings agency does not predict to see gross domestic product trends normalise until 2023 at the earliest. The note also cautioned “a more severe or prolonged hit to the economies than our current baseline would almost certainly push banks’ credit losses higher, drive their earnings lower, and amplify other risks. High private sector indebtedness and still high asset prices in many countries may have also set up some countries for a disorderly correction.”
