While total ECL provisions have largely normalised, the initial shock of the pandemic triggered upward revisions to ECL provisions. According to BIS data from a sample of 70 large, internationally active banks, provisions rose from USD 50 billion in the second half of 2019 to USD 161 billion six months later.
Similarly, the vast majority of the Asia Pacific respondents (87.8%) surveyed for this report cited a need to increase accounting provisions in response to credit quality deterioration amid the pandemic, driven by forbearance requirements and a lower risk appetite. Additionally, nearly half of the respondents (49%) said credit quality deterioration had an impact on capital adequacy, while more than two-thirds (68.4%) pointed to changes in their underlying ECL calculation models as a result of the pandemic.
While provisioning has normalised to some degree, banks are anticipating increased impairments in the year ahead, however in varying degrees. The research found that 22.4% of respondents reported expectations for a significant change in impairment, 53.1% expected a moderate change, and 20.4% expected a minor change. Only 4.1% of respondents expected no change in their total impairment.