Euro debt woes cause risks, but impacts manageable: S&P
Asia-Pacific banks are capable of withstanding pressures from the euro debt crisis given the sound financial profiles, said Standard & Poor's Ratings Services.
In a statement released on Wednesday, the ratings agency said that it currently considers most of the rated banks in the region capable of withstanding pressures from the euro debt crisis at their current rating levels. However, in the case of a more pronounced global economic slowdown, there could be increasing pressure on the banking sectors of some Asia-Pacific countries.
Under the base-case scenario, S&P assumes the global economy will avoid a severe recession; the Economic and Monetary Union will grow at an anemic 0.4 per cent in 2012 and enter a mild recession; the US economy will escape a recession; and China will manage to secure a soft landing with about 7.7-8 per cent growth in 2012. However, if the eurozone’s debt woes lead to a more severe global financial, it could prompt us to lower our assessments of the banks, including those for their risk positions and capital and earnings.
“Considering the export-oriented structure of the Asia-Pacific region, a more pronounced global economic slowdown could have a larger impact on the region’s overall economy and the credit profile of the Asia-Pacific banking industry,” said Standard & Poor’s credit analyst Naoko Nemoto. “Under this scenario, which differs from our base-case scenario, we would consider negative rating actions on the banking sectors of relevant Asia-Pacific countries.”
S&P said that it may also consider negative rating actions if stresses in the eurozone cause a market dislocation and result in funding difficulties for Asia-Pacific banks, for instance, by a pronounced withdrawal of European banks from the region, Nemoto said. If confidence in global financial market weakens and European banks reduce their assets in the region, that could increase pressure on Asia-Pacific banks’ asset quality and funding.
