2017 outlook for banks in Asia Pacific negative
KUCHING: Moody’s Investors Service says that 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,” Stephen Long, a Moody’s managing director, said.
“Foreign private capital f lows will remain volatile in emerging Asia, pressuring domest ic currencies and
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.
weakening operating conditions for the banks,” Long added. “And, property price increases in parts of Asia Pacific will further amplify credit risk for the banks.”
In addition, the banks’ generally strong profitability will continue to be pressured by higher credit costs.
Nevertheless, Moody’s pointed 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.
Moody’s analysis is contained in its just- released outlook titled “Banks – Asia Pacific: 2017 Outlook - Negative Amid Asset Quality and Profitability Challenges,” and is authored by Long.
On the issue of corporate leverage affecting the banks’ asset qual ity, Moody’s said that such leverage remains generally elevated in Asia Pacific. And, while the pace of debt accumulation has slowed in many markets - indicating early deleveraging efforts - the elevated levels of debt will test the banks’ asset quality, as some firms struggle with weak cash flows and high debt levels.
On Chinese banks in particular, Moody’s said that these banks will continue to face credit chal lenges, because their operating environment will stay challenging, ref lecting the country’s slower economic growth, an increase in corporate sector restructuring, and rising concerns over elevated asset prices in some areas.
As for government support for the banks, Moody’s said such support will stay high, because regulators in Asia Pacific are not keen to embrace wider bailin measures. Hong Kong was the only exception in the region, with ongoing progress towards an operational resolution regime.
Moody’s also addressed the issue of emerging risks and opportunities, saying that green bond issuance by banks in Asia Pacific is set to increase further. In addition, the competition posed by financial technology firms will improve the banks’ development and delivery of financial services.
Of the 16 banking systems in Asia Pacific that Moody’s analysed, six carried negative outlooks versus three in early 2016. The stable outlooks for the remaining 10 systems reflected the banks’ greater resilience against higher solvency risks.
The 16 banking systems analysed by Moody’s were: Australia ( negative banking system outlook), China (negative), Hong Kong ( negative), India ( stable), Indonesia ( stable), Japan (stable), Korea (negative), Malaysia ( stable), Mongolia (negative), New Zealand (stable), the Philippines (stable), Singapore (negative), Sri Lanka (stable), Taiwan (stable), Thailand (stable) and Vietnam (stable).
Stephen Long, Moody managing director