Coronavirus which has claimed over 1,100 lives in China, more than the SARS epidemic in 2003, is now seen hurting the profitability of banks in Asia Pacific (APAC).
“If the outbreak of the coronavirus intensifies and the disruptions stemming from it are not contained in the next few months, it will hurt asset quality and profitability at banks in Asia Pacific (APAC). The severity and length of the outbreak remain highly uncertain,” Moody’s said.
Moody’s Investors Service on Wednesday expressed the possibility of a ripple effect of the virus on global tourism, private consumption, property prices and financial markets if the Chinese government is unable to contain the outbreak of the coronavirus “in the next few months”.
Factory closures in China due to the virus, Moody’s said, will disrupt supply chains, particularly in the electronics and automotive sectors.
“As people travel less, economic growth and employment conditions will weaken in jurisdictions that are dependent on foreign travellers. This will hurt banks’ asset quality, in turn driving up credit costs and weakening profitability,” it added.
Besides, households will consume less at brick-and-mortar retail outlets, hurting businesses that are dependent on domestic private spending. Banks will face credit losses from exposures to weaker companies.
Also, real estate prices can decline as a result of weaker economic growth and investor confidence, leading to larger losses on mortgages and property exposures.