Credit union professionals from around the globe learned how the COVID-19 pandemic has contributed to a rise in non-performing loans (NPLs) and other expected credit losses—and how they can mitigate that impact—during a January 14 World Council of Credit Unions’ International Advocacy webinar.
Osman Sattar, Director of EMEA Financial Institutions for S&P Global Ratings, forecasts global credit losses will surpass US $2 trillion due to the pandemic—with banks and credit unions in western Europe and North America facing the biggest percentage increase in losses compared to 2019.
The changes in credit cost ratios are actually higher now than they were during the global financial crisis of 2008-09, but Sattar says there are some key differences from that time.
“First of all, we have more timely recognition of credit losses, given the development in accounting requirements. So, we’ve moved from an incurred loss, credit loss model both in U.S. GAAP and in IFRS to a more forward-looking, more timely recognition of credit losses,” said Sattar. “Also, the share of lending in emerging markets is higher now than it was then, and I think the quality of that lending, given the nature of those markets, tend to be of lower quality than in developed markets so that can also have an influence.
Sattar's presentation was based on a report he published with colleagues, "The $2 Trillion Question: What’s On The Horizon For Bank Credit Losses."
A credit union perspective on NPLs
Steven Stapp, CEO of Unitus Community Credit Union in Portland, Oregon, said NPLs and other losses have not hit levels they had projected yet and may not, even though he does see more loans going into delinquency in 2021.
“Businesses are bringing employees back, but now we kind of go into a second shutdown and so, as I said—this is sort of a very fluid environment,” said Stapp, who noted that many employees being brought back are still working at reduced hours.
Stapp also laid out both short-term and long-term tools his credit union is using to mitigate the impacts of the pandemic on loan delinquency, including skipped payments, forbearance, refinancing and restructuring.
Regulators keep close watch
National and regional regulators around the globe are also keeping a close eye on things like delinquency rates and credit losses as well, according to Andrew Price, World Council Senior Vice President of Advocacy.
“Obviously we’ve seen a confluence of relief measures that have been passed from an accounting standpoint—on how you’re calculating your expected losses, we’ve been given some relief on that. (Also) how you treat payment moratoriums, how you treat foreclosures,” said Price. “They were quick to provide the relief. I hope they’re also thoughtful as we start to come through the pandemic.”
If you missed this webinar, you can watch it in its entirety on the World Council YouTube Channel.