S&P Global Ratings says that the spread of the coronavirus could have a far greater impact on China’s economy and its banking system than the Sars outbreak of 2003.
S&P analyst Ming Tan said in a research note that the initial impacts of the coronavirus “seem worse than Sars,” following the shut down of at least 15 cities in Hubei province where the disease first emerged.
Tan said that the eventual impact of the coronavirus could be greater given that that of Sars in 2003 given China’s changing economic circumstances and slower growth as a more mature economy.
“Although the Chinese banking sector and the economy are much stronger today than they were in 2003 and are in better financial shape to meet the challenges, Sars happened when the Chinese economy was gaining momentum after joining the World Trade Organisation in 2001,” Tan said.
“With that momentum, the economy probably rebounded from Sars faster than it otherwise would. Currently, the Chinese economy is facing multiple risks, which could slow down the recovery of economic activities and potentially bring more pain to the banking sector.”
Tan further points out that the corona virus has already spread further than Sars, with over 24,000 infections and nearly 600 deaths in mainland China.
“Because the contagion is already more widespread, the GDP trajectory for the novel coronavirus could be worse, if it is not contained swiftly,” he wrote.
“The outbreak is testing the ‘traditional credit risk-driven stress assumptions’ employed in the People’s Bank of China’s (PBOC) stress test of the country’s 30 biggest banks last year.”
Tan expects Beijing to request that Chinese banks contribute to efforts to preserve social stability, as well as implement further reductions to the reserve requirement ratio.