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Banking

McKinsey says 2021 will be worse for banks than 2020

While credit costs have further to rise, McKinsey’s flagship banking survey says the biggest post-Covid challenge is moving away from interest income.

2021 New Year Concept with Wrecking Ball
asbe/Getty Images/iStockphoto

Covid-19 will inflict its greatest harm on banks in 2021, according to a global industry survey by McKinsey.

The survey, which is based on conversations with hundreds of bank executives from around the world, sees loan losses spiking and the entire sector in developed markets sinking to a loss in 2021.

We still think that the peak is not there yet
Matthieu Lemerle, McKinsey
matthieu-lmerle 960x535.jpg

So far, many banks have taken a wait-and-see approach to provisioning, thanks to doubts about when government support measures will end, and what the impact will be when support finishes.

Banks wrote off $900 billion in the first half of 2020, before cutting provisions in the third quarter, according to McKinsey.

However, the report acknowledges that banks’ share valuations – three quarters of which are below book value – suggest a great deal of doubt about the adequacy of these provisions.

The McKinsey survey’s central scenario of a muted economic recovery consequently shows loan losses from Covid-19 surpassing those from the great financial crisis by 2021, at around $1.9 trillion.

“We still think that the peak is not there yet,” says Matthieu Lemerle, a senior partner at McKinsey in London, and a co-author of the report.

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