KUALA LUMPUR (Dec 30): The potential for economic recovery in the near term for the global banking industry remains uncertain as the ongoing coronavirus pandemic is set to pose a double-pronged problem for the industry in the months and years to come.

According to research data analysed and published by online trading portal Comprar Acciones yesterday, in the first stage, banks will suffer severe credit losses.

It said during the period of 2020 and 2021, foregone revenue will amount to US$1 trillion.

Loan-loss provisions (LLPs) for the same period are projected to reach US$1.9 trillion, it said.

The second stage is estimated to run from 2020 to 2024.

Within that five-year period, banks are estimated to lose US$3.7 trillion in revenue, it said.

Citing McKinsey, the portal said this is equivalent to over six months of industry revenue that will be lost and never recovered.

It said this figure is the base scenario and could go as high as US$4.7 trillion.

Comprar Acciones said a revenue loss of US$3.7 trillion would be a 14% fall, compared to pre-pandemic growth projections.

It said during the third quarter of 2020 (3Q20), banks around the world set aside US$1.15 trillion as LLPs, adding that this was much higher than the amount provisioned throughout 2019.

Due to forbearance programmes and government support, banks have yet to take substantial write-offs. 

“But McKinsey pointed out that this state of suspended animation is unlikely to last forever. Based on its base scenario, in the coming years, LLPs will surpass those of the Great Recession,” it said.

However, the portal said a Deloitte report pointed out that for the banking industry, the economic impact of the Covid-19 pandemic is not on the same scale as that of the 2008 Global Financial Crisis (GFC).

“For the US banking sector, it estimated that between 2020 and 2022, LLPs could go as high as US$318 billion. That would be equivalent to 3.2% of loans.

“In the first three quarters of 2020, LLPs jumped in all major economies but remained below the levels seen in the GFC,” it said.

Comprar Acciones said the top 100 North American banks had the highest figure of US$130.9 billion, while for the top 100 US banks, the total was US$72.2 billion.

In Asia-Pacific (APAC), the top 100 banks set aside a total of US$115.2 billion, and in Europe US$89.4 billion.

60% of the losses forecast in the Deloitte report are expected to take place in APAC.

“From the US$926 billion increase in credit losses in 2020 and 2021, APAC will account for US$518 billion. China will dominate with US$398 billion in credit losses.

“North America will account for US$240 billion of the increase, while Western Europe will account for US$120 billion,” it said.

According to Deloitte’s baseline economic scenario forecast, the 2020 average return on equity (ROE) for the US banking industry could fall to 5.6%. But by 2022, it could rebound to 11.7%.

For the top 100 banks in North America, APAC and Europe, the estimated average ROE could fall by three percentage points to 6.8% in 2020.

In North America and Europe, they are not expected to recover to pre-pandemic levels in the near term. However, in APAC, they might get close to the pre-Covid-19 average of 9.2% by 2022.