Asia-Pacific banks put under test: S&P

 Standard & Poor's Ratings Services said in the latest article that it is convinced that the high loan growth and moderate credit costs the sector has enjoyed could become a thing of the past. Instead, Europe's debt crisis, lower regional economic growth, and contraction in some property markets could impair loan quality and push credit costs higher.
 "In our view, slower economic growth is likely to impede credit growth and fee-based activities for banks, and this, in turn, could weaken profitability," said Standard & Poor's credit analyst Naoko Nemoto. "Instability in the global financial markets could also hurt Asia-Pacific banks that rely on wholesale funding, and higher funding costs would squeeze net interest margins."
 Helping them to ride the storms is the adequate capitalisation, strong systemwide liquidity, and low levels of non-performing loans (NPLs).
 The rating agency said that most of regional banks under its rating radar are rated "A" or higher and 80 per cent of the outlooks are stable.

It noted that under the base-case scenario, the global economy is assumed to slow but avoid a severe recession. If the Asia-Pacific economy faces a sharp and prolonged downturn due to a global recession, causing a surge in credit costs and capital deterioration, it could consider negative rating actions. A hard landing in China, with weaker economic growth than our base-case scenario of 7.7-8 per cent GDP growth, would have significant knock-on effects on growth in the Asia-Pacific region. However, it said that in the current view, this downside scenario is unlikely.