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Key Credit Risk Factors When Assessing Banks In The Context Of COVID-19

Overview

Banks across the world will inevitably face an impact on creditworthiness through 2020 as a result of the significant effects of the coronavirus pandemic, oil price shock, and heightened market volatility. This report highlights how to monitor credit risk across banking institutions and geographies in the context of COVID-19 using S&P Global Market Intelligence Banks Scorecard.

Due to a number of factors linked directly or indirectly to COVID-19 and the oil price shock, the rated and unrated universe may see an increase in the number of defaults. The magnitude will vary by industry, geography, and rating level. According to S&P Global Ratings, the main near-term risk for banks remains asset quality; in the longer term, profitability concerns will increase compared to pre-COVID-19. It will underpin the need for further structural changes, possibly consolidation in a number of banking systems and increased regulatory scrutiny.[1]

Banks in emerging markets are often more exposed than developed market peers because of lower investor appetite and increasing funding costs for systems dependent on external financing. According to S&P Global Ratings, developed economies usually have the capacity to exercise larger and more effective support and stimulus, given their wealth and access to funding. Emerging markets have less room for policies to cushion the economic hit; in some extreme cases, their access to funding is limited.[2] 

In this context, we believe that proactive monitoring of quantitative and qualitative risk factors using our Banks Scorecard can help to understand and assess the rising credit risks associated with this pandemic. We have also, for the purpose of this paper, drawn on assessment rationales and discussions developed by S&P Global Ratings to reflect the impact of COVID-19 on banks, globally.

Credit Assessment Scorecards

S&P Global Market Intelligence’s Credit Assessment Scorecards provide the framework which gives access to credit risk benchmarks and attribute-driven scoring guidelines in an easy-to-use, intuitive structure designed to score rated and unrated banks.

Our Scorecards undergo a rigorous annual validation process to test their predictive power. Scorecard numerical outputs leverage S&P Global Ratings’ criteria and are further supported by 35+ years of historical default data[3]. Additionally, each Scorecard can be adapted to your own internal scale.

Source: S&P Global Market Intelligence. For illustrative purposes only.



[2] Coronavirus Impact: Key Takeaways From Our Article, S&P Global Ratings. Date: 03 April 2020

[3] S&P Global Ratings does not contribute to or participate in the creation of credit scores generated by S&P Global Market Intelligence.

 

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