IACPM: Majority of credit managers think economy will recover by year-end

The majority of credit portfolio managers believe the world will mostly recover by the end of the year from the COVID-19 crisis and the near-shutdown of the global economy, according to the first-quarter survey from the International Association of Credit Portfolio Managers.

Fifty-six percent of surveyed managers believe the recovery will take place before the end of the year, while 44% believe the recovery will take place by the end of June 2021 or even later.

The difference of opinion is not surprising, said Som-lok Leung, IACPM's executive director, in a telephone interview.

"Obviously, the world will recover," Mr. Leung said. "The issue is when and how fast, and it's not surprising to see a difference of opinion. There's so much uncertainty, and there's a lot (of difference) that's regionally oriented."

Not surprisingly given the coronavirus pandemic, 90% of surveyed managers believe corporate defaults will increase globally over the next 12 months, while 10% believe they will stay at the same level, and zero believe defaults will decrease.

A quarter earlier, before the extent of the pandemic's impact could have been known, 48% believed corporate defaults would increase globally over the next 12 months, while 47% believed they would stay at the same level.

The Aggregate Credit Default Outlook index for the next 12 months plummeted to -90.3 in the most recent survey, down from -41.3 in the previous quarter. A negative number indicates credit conditions are expected to worsen, while positive numbers mean conditions are expected to improve.

The index swooned in every region, but North America has the lowest index at -94.3, down from -56.8 the previous quarter, while Asia had the highest at -82.6, down from -34.6 a quarter earlier.

Given the lack of surprising results in the survey, Mr. Leung said the most notable part of this quarter's survey was the individual conversations with managers, which reflected their struggles with managing risk in the current environment.

"Not surprisingly, a lot of people are (dealing) with the sectoral hits in the portfolios and managing the difficult balance of making sure you're there for your customers and providing funding where you are obligated to do so, and then trying to manage risk in situations where there is the ability to do that," Mr. Leung said.

"They're all really, really busy dealing with loan amendments, renegotiating terms, trying as much as possible to support entities that in the long run still look good but in the short term are struggling," he said.

The survey is conducted among IACPM members, which consist of credit portfolio managers at more than 100 financial institutions in the U.S., Europe, Asia, Africa and Australia.