The World Bank's International Finance Corp issued a dire warning about the state of financial affairs in Asia and the real potential for the coronavirus pandemic trigger an upcoming crisis.
About 50 percent of firms will fall short in income to service their loans in the coming year with an expected 30 percent rise in bankruptcies, according to a «Reuters» report citing Alfonso Garcia Mora, APAC vice president of IFC, the World Bank’s private sector arm.
What’s more, Garcia Mora noted that the region’s judicial systems were unprepared for a surge in insolvency cases nor were are there sufficient simplified methods to declare bankruptcy and restart. As a result, he expects an increase in zombie firms that are unable to liquidate as well as liquidated firms that should be liquidated.
Poverty: +100 Million
As a result of failed businesses and an estimated APAC GDP contraction of 0.5 percent in 2020 – the worst since 1967 – the World Bank estimates that 10-15 million youth jobs will also be lost across the region.
100 million new individuals globally will also fall into poverty (daily earnings of $1.90 or less) with half coming from the region, mostly in South Asia.
Surprise Balance Sheet Risk
Garcia Mora also noted in the report a key risk that may currently be overlooked: hidden balance sheet weakness. Although many firms have been offered moratoriums for loan repayments, many central banks are not requiring financial institutions to monitor the solvency of these borrowers.
«What can happen is that when the bank opens their books in six months, or in 12 months, they will realise that their non-performing loans ratio is not 2 percent but 20 percent,» he said.
«This is why I am very concerned about the sequencing of this crisis. We started with a healthcare crisis, that's clear. We went into an economic crisis, and we might end up in a financial crisis.»
