In this semi-annual note, we update our forecasts of NPL Ratios in many countries based on the most recent macroeconomic scenarios of the World Economic Outlook published by the IMF in April 2023.
The main observation is that while there is a clear expectation for increased credit risk in 2023, most actual NPL indicators available thus far have not yet shown a substantial deterioration in loan performance. We comment on other indicators such as bankruptcies that support the expectation for higher credit losses going forward.
Predictive models that use inflation or lending rates as risk drivers forecast increases in NPLs that vary from modest to extreme. While we do not think that extreme increases are likely we consider the general direction towards higher credit risk as plausible and likely.