SINGAPORE (Mar 24): Moody’s Investor Service has warned that it could downgrade the credit ratings of banks and insurers as a result of the novel coronavirus (Covid-19) pandemic.

This will be the case if the spread of Covid-19 and the resulting economic slowdown were to be prolonged and extensive, the ratings agency stresses.

Banks are at risk because local restrictions on movement, leisure activities and air travel will significantly weaken their operating conditions and asset quality, it says.

In particular, lower consumption and higher unemployment and trade will lead to reduced borrower ability to meet loan payments, which in turn, weakens the banks’ profitability.

Moreover, banks with greater credit exposure to the most affected sectors will be disproportionately impacted as well, it adds.

On the other hand, life insurers with older-age blocks of mortality business will face higher claims, says Moody’s.

This is because infected persons over age 65 have a much higher mortality rate.

Trade credit insurers will also be exposed to the effects of rising claims as significant supply chain disruptions persist, says Moody’s.

This is especially for those with business concentrated in hard-hit regions, and particularly small and medium enterprises.

Property and casualty insurers too will be exposed to losses from business interruption and travel insurance claims, it adds.

“Although we will endeavour to position and, if necessary, reposition ratings at their appropriate levels as quickly as possible, we also recognize that greater visibility over the depth and length of the current crisis will be necessary to fully quantify the impact across some industries,” says Moody’s.