Due to coronavirus, which has been declared as a global health emergency by the WHO, China has shut down a lot of its regions, causing a hit to many industries across the world.
If the coronavirus outbreak prolongs, it can cause an adverse effect on the economies of countries in the Asia-Pacific region, news agency PTI has reported rating agency Moody’s as saying. The virus, which has killed more than 1,100 people in China so far, will have a more severe impact on banks dealing with poor asset quality and profitability, the agency further said.
Due to coronavirus, which has been declared as a global health emergency by the WHO, China has shut down a lot of its regions, causing a hit to many industries across the world. China is currently the largest source market in the world economy.
Issuing the warning, Moody’s on Wednesday said that the adverse effect of the disease can be attributed to the hit on commodity prices, consumption, travel and tourism and supply chain disruptions and these will, in turn, affect the banks largely.
According to the report, Moody’s Investors Service said that the severity and length of the outbreak are uncertain at the moment. In case the disruptions are short-lived, the impact on Asia-Pacific economies and banks will be limited. On the other hand, the outbreak could last for a long time and its severity might increase, it said.
The note issued by Moody’s further said that since people will travel less due to the outbreak, the economic growth and employment conditions relating to the travel and tourism sector in the countries depending on foreign tourists will also be on the receiving end of a severe blow. As a result, the banks’ asset quality will receive a further hit, driving up their credit costs and adversely affecting their profitability, the note further said.
If the outbreak prolongs, the households will consume less, hurting those businesses that rely on domestic spending. Banks will then face credit losses due to exposure to weaker companies, the note added.
The closure of factories in China will cause a disruption in supply chains, especially in the automotive and electronics sectors, increasing the credit risk of banks from financing for the suppliers or subcontractors dependent on technology or auto companies, Moody’s said.
A decrease in the demand from China will pull down commodity prices, making growth in commodity-exporting countries nosedive and impacting the commodity companies.
Moreover, prices of real estate might also decline due to weaker economic growth and investor confidence, causing losses on mortgages and property exposures.