Asean banks likely to absorb weakening assets
The asset quality of banks in the Asean region could weaken over the next 12-18 months, but their strong performance over the past few years should enable them to absorb the impact, says Standard & Poor's Ratings Services.
Those conclusions appeared in the S&P report “Asean Banks Will Remain Resilient to Rising Risks” published yesterday.
“The healthy recurring profits and adequate capital cushions of Asean banks and the strong government support for these banks will underpin rating stability and buffer against downside risks,” said S&P credit analyst Ivan Tan.
The report notes that risks have been building up for Asean banks after several years of smooth sailing. These include credit risks due to rising property prices and household indebtedness, funding pressure from tight liquidity, and market risks from rising interest rates in certain countries.
Rising property prices amid widely available and affordable credit propelled the increase in household debt in Singapore and Malaysia.
A prolonged run-up in housing prices and household indebtedness has also contributed to growing economic imbalances.
However, non-performing loans in both countries have remained low, reflecting affordable mortgage rates and nearly full employment.
“Some credit weakening is inevitable in Singapore and Malaysia, given the countries’ high household debt, as interest rates there start to increase,” Tan said. “However, a series of measures by the governments in both nations to cool the property market should limit the impact.
“In Thailand, special-mention loans, which are a leading indicator of future non-performing loans, have also begun to rise, suggesting that the deterioration in asset quality will persist. But we believe Thai banks’ significant reserves provide a counter-cyclical buffer against downside risks.”
