The damage from Covid-19 crisis continues to weigh on issuer financials in Asia Pacific with S&P Global Ratings showing negative outlooks or on credit watch with negative implications on a net 16 per cent of issuers.
While this ratio is a slight improvement over recent months, it still implies a significant likelihood of downgrades or defaults in 2021, according to the report titled 'Sector Roundup Asia Pacific Q2 2021: The Climb Back Is Steeper For Some' published on Monday.
"The economic recovery in Asia Pacific indicates an upside to revenue in 2021," said Eunice Tan, a credit analyst at S&P Global Ratings.
"However, the substantial hit to borrowers' financials in 2020 means that a full recovery to 2019 credit metrics is unlikely for the majority of issuers until well into 2022."
For the region's non-financial corporates, most will need until 2022 before fully recovering. S&P forecast median profit growth in the mid-to-high single digits in 2021, higher profits at nearly 90 per cent of rated entities in 2021 and average credit ratios that revert to pre-Covid-19 levels in the second half of 2022 for majority of sectors.
For financial institutions, credit losses will hit 581 billion dollars over 2020-22. While Covid-19 is hitting lenders hard, S&P recently revised down its forecast of credit losses for China and the rest of Asia Pacific over 2020-2022.
Fiscal support and forbearance have contained damage but downside risks remain as these programmes unwind, it said.
Risks to market confidence remain. The economic shock from Covid-19 was largely cushioned by governments printing money. This helped to support real asset prices and drive up financial asset prices.
S&P said investors and creditors could reset their risk-return requirements if they believe inflation is returning or possibly in response to a high-profile default.
The resulting higher cost of debt and reduced access to funding could hit issuers with elevated debt loads, especially in harder Covid-hit sectors.
( With inputs from ANI )
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