Asian banks' credit quality broadly stable: Moody's

HONG KONG: Moody's Investors Service expects that Asian banks' credit quality will be mostly stable in 2015, even as credit costs increase and asset quality weakens. Most banking systems in the region remain well capitalized and profitable, with some exceptions. Moody's analysis is contained in its new report "2015 Outlook - Asian Banks: On Solid Footing against Rising Credit Headwinds", which examines 16 systems globally, and divides them into six broad categories in terms of their bank credit outlook.

The stable footing will allow banks to withstand increasing credit costs. Moody's anticipates a gradual strengthening in the region's growth momentum as external demand, particularly from a recovering US economy, improves.

"Still, the likely divergence in monetary policy among industrial economies such as the US, UK, mainland Europe and others, could challenge some Asian banking systems," says Stephen Long, a Moody's Managing Director -- Financial Institutions Group. "Those systems with high leverage and elevated dependence on capital inflows are vulnerable to adjustment challenges," adds Long.

Moody's points to China and Indonesia as systems where banks remain at risk of adjustment pressures after a period of strong credit growth, but notes that their banking systems still have stable outlooks due to loss absorbing buffers.