they have each expressed concerns over the possible effects of the withdrawal of support measures, which have so far been effective in deferring credit losses.
In the Asia Pacific region, the Bank of Japan (BOJ), Reserve Bank of Australia (RBA), and Monetary Authority of Singapore (MAS), among others, have similarly expressed concerns over the creditworthiness of loans to businesses that were impacted by Covid-19, particularly if the recovery stalls or falters.
“Covid-19 and the fragile macroeconomic environment have impacted banks to varying degrees, and there is no consensus as of now what may happen to marginal credits once the central banks begin to pull back on their support mechanisms,” says David Croen, Product Manager for Credit Risk at Bloomberg.
“There is a substantial outstanding amount of loans under moratoria and/or guarantees, and it is not clear what impact there may be on banks by their resolution, if these borrowers have not re-strengthened sufficiently,” Croen highlights. “Meanwhile, the K-shaped recoveries seen regionally will challenge banks to have more quantitative and forward-looking measures of Default Probabilities, Loss Given Default and Exposure at Default which will drive changes in Expected Credit Loss.”