Moody's - Decline in provisions for UK, the US and Australian banks reflects stronger economic outlook
Research Announcement:
Moody's - Decline in provisions for UK, the US
and Australian banks reflects stronger economic outlook
London, April 12, 2021 --
» Banks in the UK, the US, and Australia reported a decline in provisions as the economic outlook
improves
» Non-performing loans likely to rise as government support measures expire
Loan loss provisions for expected credit losses fell further for the largest banks in the UK (Aa3
stable), the US (Aaa stable) and Australia (Aaa stable) in the fourth quarter of last year, as the
economic outlook improved, Moody's Investors Service said in a report published today.
“Non-performing loan levels remain lower than anticipated as consumers continue to benefit from
significant government support,” says David Fanger, Senior Vice President at Moody's, one of the
authors of the report. “Nonetheless, we expect non-performing loans to increase towards the end of
the year as government support expires.”
Despite an improved economic outlook, there is still a lot of uncertainty around future economic
growth, government stimulus, and the impact of expiring payment forbearance programs. Slow
vaccination progress and new COVID variants could prolong the pandemic and eventually increase
the risk of defaults, challenging UK's, US's and Australia's banking systems.
The report is the third in a series tracking the increase in pandemic-related credit losses for the four
largest banks in the US, the UK and Australia.
During the final quarter of 2020, five of the 12 banks in our surveyed group released provisions,
compared with just one in Q3. Provisions fell furthest in the US despite an increase in non-
performing loans (NPLs), reflecting a stronger economic outlook and US accounting standards.
Australian banks' substantial build-up of loan loss reserves in 2020 - in anticipation of a much more
severe economic downturn - puts them in a good position to withstand future increases in NPLs.
Their provisions will remain robust even if the sector releases more reserves in the coming months.
UK banks have built an adequate level of reserves to absorb the losses that could arise if the
macroeconomic conditions are in line with our central scenario.
Subscribers can access the report at:
http://www.moodys.com/researchdocumentcontentpage.aspx?
docid=PBC_1272957
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This publication does not announce a credit rating action. For any credit ratings referenced in this
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for the most
updated credit rating action information and rating history.
David Fanger
Senior Vice President
Financial Institutions Group
Moody's Investors Service, Inc.
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Laurie Mayers
Associate Managing Director
Financial Institutions Group
Moody's Investors Service Ltd.
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Client Service: 44 20 7772 5454
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