Many countries have already launched, or could do so soon, crisis response programs that will provide government support to households, businesses, financial institutions and financial markets affected by the economic consequences of the coronavirus.
These measures mitigate risks for financial institutions, highlights Moody’s agency, although he warns that some elements of them they can increase risk for individual financial institutions in the long term.
“In particular, government-mandated loan defaults could weaken asset quality, and the regulatory leniency on loss accounting standards and capital standards could increase risks for major creditors“explains Moody’s.
According to the agency, once the crisis is over, most highly rated financial institutions are likely to return to profitability, restoring their capital reserves and continuing to deserve high ratings.
Therefore, financial institutions that are most vulnerable to (rating) downgrades during the crisis are those that already have low grades and are at risk of failure or operating in countries that lack the resources to finance extensive economic support programs and are likely to experience a deep, prolonged recession, “the agency said.