Banking institutions in emerging markets like India, Mexico and South Africa, will see a slower recovery than its peers' in other geographies, seeing pre-COVID-19 levels only after 2023, says a recent report by Standard and Poor's (S&P).
In its report titled "Global Banking: Recovery Will Stretch To 2023 And Beyond" released on 24 September, the international rating agency said that the Indian banking sector, a "late-exiter", had significant asset-quality issues even before the pandemic, while asset quality was showing an improvement in many other jurisdictions.
Even for the likely "early-exiter banking jurisdictions," stabilisation and recovery may take 18 months or more after a rebound.
S&P said that a sharp increase in credit losses will be seen in banks of emerging markets in 2020, but there is potential for a gradual improvement in the following years if economic activity rebounds.
It sees the banks' relatively strong profitability to provide some cushion to absorb the anticipated weak performance in the loan portfolio.
While other emerging markets are expected to see likely recovery in 2023 or later, recovery to pre-crisis levels could occur for the Chinese banking system by end-2022.
The full effect of the asset quality deterioration on banks' balance sheets is expected in 2021.