Rating agencies downbeat on Asean banking next year 

 
Fitch Ratings has maintained a negative banking-sector outlook for Indonesia, Malaysia and Thailand, and has moved Singapore’s to negative from stable to reflect continued asset-quality risks from oil and gas exposures and broader pressures from a slowing economy. 
Only the Philippines and Vietnam – where economic prospects are brighter – have stable outlooks for the sector.
Fitch said weak global trade, low commodity prices and the slowdown in China’s economy had all contributed to a weakening of gross-domestic-product growth over the last few years across many members of Asean. 
“We expect only a slight pick-up in 2017, while the continued build-up in Chinese corporate debt and the possibility of a rise in US protectionism, renewed dollar strength and higher US interest rates have added to downside economic risks,” the company said.
Loan demand is likely to remain soft in these subdued economic conditions, limiting opportunities for earnings growth, while Fitch also expects non-performing-loan (NPL) ratios to rise in most Asean banking sectors. 
Asset-quality issues are likely to continue to broaden in Thailand and Indonesia, with loans to the SME (small and medium-sized enterprise) sector, in particular, vulnerable to the muted economic environment.
Meanwhile, banks in Singapore and Malaysia are more exposed to stress in the oil and gas sector, where Fitch expects operating conditions to remain tough, despite a modest recovery in energy prices, which will place continued pressure on more vulnerable sub-segments such as oil-service operators.
Singapore banks were hit by debt restructuring and defaults in the oil and gas sector in in 2015 and this year, which pushed up the average NPL ratio of the three local banks to 1.4 per cent at end-September from 1.1 per cent at the end of last year, the company said.
Moody’s Investors Service says the outlook for banks in Asia-Pacific for 2017 is negative, because of the challenging operating conditions in the region, which will weigh on the banks’ asset quality and profitability.
“Problem assets will rise from a generally low level, due to previous rapid credit expansion, elevated corporate and household leverage in some economies, the ongoing recognition of credit problems, and challenges in commodities and cyclical industries,” said Stephen Long, a Moody’s managing director.
Nevertheless, Moody’s points out that despite the overall negative outlook, downside risks for the banks are partly balanced by the banks’ improving capital levels, as well as their strong funding and liquidity profiles.
S&P Global Ratings, meanwhile, regularly answers investor questions during its webcasts on a wide range of credit topics across sectors and countries. 
In an article published yesterday, titled “Credit FAQ: Asia-Pacific Credit 2017: Old Worries, New Risks”, it responded to investor concerns about the effects of a stronger dollar and higher credit costs, increased trade tensions, and many other issues facing the region.
The company said that in the past year or two, the credit landscape in Asia-Pacific had been dominated by investors’ fears of a hard landing in China. 
Going into 2017, there is a new uncertainty to ponder, regarding the “highly unconventional” US president-elect, Donald Trump, it said.
“As a candidate, Trump vowed to impose a 45-per-cent import tariff on Chinese goods. Should he make good on this threat, it’s hard to see any upside for China,” said S&P Global Ratings’ Asia-Pacific chief economist, Paul Gruenwald. 
However, increased US fiscal spending – also promised by Trump – could provide a global stimulus that boosts the Asia-Pacific, he added.