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23rd February 2021
S&P Global publishes report: "Good Earning Capacity Gives Rated Banks In Emerging Markets A Buffer From COVID-19's Effects"
S&P Global Ratings believes that the COVID-19 pandemic will continue to dominate the credit story for emerging markets (EMs) in 2021. The rating agency comments "We think that vaccine rollouts and exceptionally accommodative monetary policy from developed markets' central banks will help recovery and financing conditions for emerging markets. However, we still expect the asset quality indicators of In In our report "Good Earning Capacity Gives Rated Banks In Emerging Markets A Buffer From COVID-19's Effects", we simulated how much in credit losses the top 41 rated banks in EM can absorb under different scenarios, one focusing on banks' profitability and excess provision on existing nonperforming loans and one considering buffers exceeding our internal capital thresholds. Based on our calculations, the total credit loss absorption, before being in the red, ranges from $491bn-$602bn, depending on the assumptions.
Based on margins, some South American banks can absorb the most losses, with those in South Africa on the opposite end of the spectrum. Although these calculations are not an indication of a potential rating action, they do provide valuable insight in our analysis.
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