S&P Warns: AI, Cyber Threats to Deepen Banking Divide! Global Lenders Face Widening Performance Gap – What Investors Must Know

Banking/Finance

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Updated on 13 Nov 2025, 04:13 pm

S&P Global Ratings' latest report identifies critical evolving risks shaping the global banking sector. Key challenges include rapid digitalization and the transformative impact of Artificial Intelligence (AI). AI adoption is seen as crucial for competitive advantage, though its implementation involves significant capital expenditure and running costs. While AI can offer long-term benefits like efficiency gains and improved client loyalty, it also introduces new technical risks and reliance on third-party vendors. Alongside AI, climate change and increasing cyber threats pose substantial risks to banks' business models and operational stability. The report anticipates a widening performance gap between stronger and weaker banks, a trend known as increasing credit divergence.

Impact: S&P forecasts global bank credit losses to rise from $609 billion in 2025 to $655 billion in 2026 (a 7.5% increase) and $683 billion in 2027 (a 4.3% increase). The Asia-Pacific region is expected to contribute significantly to this rise, influenced by trade uncertainties affecting lending to Chinese small businesses and consumers. Despite these increases, losses are predicted to stay within manageable levels, supported by robust bank profitability and stringent prudential regulations. This news impacts Indian stock market investors by providing insight into global financial sector stability, potential contagion risks, and strategic shifts like AI adoption that could influence Indian banking sector performance and investment decisions. Impact Rating: 7/10

Difficult terms: * **Digitalization**: The process of converting information into a digital format and using digital technologies to change a business model and provide new revenue and value-producing opportunities. * **Artificial Intelligence (AI)**: The simulation of human intelligence processes by computer systems, including learning, problem-solving, and decision-making. * **Cyber Threats**: Malicious actions or attacks targeting computer systems, networks, or data, often aimed at causing damage, disruption, or unauthorized access. * **Business Models**: A company's plan for how it will make money, outlining its products or services, target customers, and revenue streams. * **Risk Management Practices**: The procedures and strategies implemented by an organization to identify, assess, and control potential risks. * **Credit Divergence**: The widening difference in performance or creditworthiness between stronger and weaker entities within a sector or market. * **Credit Losses**: The financial losses incurred when borrowers fail to repay their debts. * **Asia-Pacific Region**: A geographical area that includes countries in East Asia, Southeast Asia, and the Pacific islands. * **Prudential Rules**: Regulations designed to ensure the safety and soundness of financial institutions, such as capital adequacy requirements and liquidity standards.