Tuesday, October 20, 2020

Moody’s negative on Asia-Pacific banking industry

Dec 09. 2019
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Moody’s Investors Service says its outlook for the Asia-Pacific banking industry is negative over the next 12 months as the US-China trade dispute will weaken economic and trade activity in the region and erode investor confidence.

“Weaker economic and trade conditions will lead to moderate increases in problem loans for APAC banks,” said Moody’s vice president and senior credit officer Eugene Tarzimanov.

“Meanwhile, the profitability of banks will fall because they are raising credit provisions while central banks are cutting interest rates to support economic growth,” he added.

Nevertheless, Moody’s said APAC banks have generally maintained good capital and liquidity buffers and the probability of government support for these banks will stay high, except for banks in Hong Kong, because the territory is the only jurisdiction in APAC with an “operational resolution regime”.

Moody’s conclusions are contained in its just published 2020 outlook for the 17 banking systems in the Asia Pacific, namely in Thailand, Australia, Bangladesh, China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, Mongolia, New Zealand, the Philippines, Singapore, Sri Lanka, Taiwan and Vietnam.

Moody’s pointed out that while high private sector leverage poses a risk to many APAC economies, the buildup in leverage is generally moderating.

Most APAC banking systems have passed Moody’s stress test on capital, except for banks in India, Mongolia, Sri Lanka and Vietnam, "because banks in these jurisdictions have lower starting capital ratios and higher starting problem loan ratios".

Moody’s report also said that environmental, social and governance risks will increasingly affect the creditworthiness of APAC banks.

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