IACPM: Credit degradation, recession worry managers
At IACPM, managers are concerned about potential credit deterioration and the possibility of a recession.
The International Association of Credit Portfolio Managers' first-quarter survey reveals that credit portfolio managers are significantly worried about the worldwide credit decline and anticipate a recession to be highly probable by year-end.
Although we acknowledge the persistent challenges of increasing interest rates, high inflation, and geopolitical risks, the management team recognises a more intricate and unpredictable road ahead due to the potential limitations on credit access resulting from decreased bank liquidity.
During a telephonic interview, Som-lok Leung, the Executive Director of IACPM, expressed that while many managers found solace in the ongoing indications that the downfall of Silicon Valley Bank may not be indicative of systemic shortcomings that led to the worldwide financial crisis 15 years ago, there is an increasing sense of apprehension.
"As the CEO, I must address the current challenge facing regional banks in the U.S. regarding capital liquidity. This has resulted in a decrease in the ending appetite," stated Mr Leung. We have received feedback from the members indicating that credit pullback is occurring, not just among regional banks.
According to the survey of managers, a significant majority of 84% anticipate an impending recession in the United States before the conclusion of 2023. Additionally, 61% of respondents foresee a recession in Europe and the United Kingdom by the end of this year. The management team has identified comparable concerns in emerging markets; however, we anticipate a deferred impact owing to the distinctive banking structures prevalent in those regions.
According to a recent survey, a significant majority of North American managers, approximately 86%, anticipate an increase in corporate credit default rates over the next 12 months. It is noteworthy that 81% of managers have made a projection of such nature on a global scale. It is also worth mentioning that this marks the fourth consecutive quarter, where at least 80% of managers have projected an increase in defaults in the upcoming 12 months.
The survey's Aggregate Credit Default Outlook index for the upcoming 12 months has decreased to -87.1 in the fourth-quarter survey from -75.5 in the previous quarter. Negative figures signify a deterioration in credit conditions, whereas positive figures denote an enhancement in conditions.
The Aggregate Credit Default Outlook index for Europe exhibited the most unfavourable results by region, primarily due to its close proximity to the ongoing crisis in Ukraine. The index plummeted to -91.2, a significant decline from its previous standing of -84.4, observed merely three months ago. The North American index experienced a moderate decline to -86.5 from -84.4. Meanwhile, Asia and Australia displayed less pessimism with indexes of -66.7 and -60, respectively, in comparison to their previous quarter indexes of -59.1% and -64.7.
The survey is being conducted among esteemed IACPM members who hold the position of the credit portfolio manager at over 130 prominent financial institutions across the globe, including the U.S., Europe, Asia, Africa, and Australia.