According to a “Scenario and Sensitivity” analysis from S&P Global Ratings, credit losses across Australia’s banks are set to “more than triple” in the 2020 calendar year in response to the economic fallout from the COVID-10 pandemic.
S&P’s base case is for credit losses across Australia’s banks to rise from 0.14 per cent in 2019 to 0.5 per cent in 2020.
“A contracting economy in the short term, rising unemployment and depressed consumer and business sentiment in the wake of the coronavirus outbreak would drive an increase in credit losses for Australian banks,” S&P noted.
According to the rating agency, business loans would contribute to most of the increase in credit losses for Australian banks, with the tourism, transportation and retail services sectors likely to be severely impacted by the COVID-19 outbreak.
S&P Global Ratings agency believes households will also feel some pain, stating that it expects defaults from households to rise due to income loss.
The federal government and the Reserve Bank of Australia have concentrated most of their efforts to kickstart the economy on the business sector, providing low-cost credit and cash flow support to affected businesses.
Banks have also rolled out loan relief packages for both businesses and mortgage customers, which include options to freeze repayments for up to six months.
Despite forecasting a material increase in credit losses over the medium term, S&P said it expects defaults to the banks to “remain broadly in line” with its expected long-term average, with the ratings agency forecasting a “strong rebound” in the Australian economy at the back end of 2020.
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