BANKS FACE RISING ASSET RISKS
Lenders in Malaysia, S’pore, S. Korea and Japan have largest exposures, says Moody’s
MOODY’S Investors Service said an unprecedented plunge in global oil prices since March is adding to asset risks for banks in Singapore, Malaysia, Japan and South Korea.
This was due to the fact that they simultaneously coped with consequences of the Covid-19 pandemic, said the rating agency in a statement yesterday.
Moody’s expects oil prices to remain low for the rest of the year, suppressed by a supply glut and weak demand that economic disruptions from the pandemic were exacerbating.
“This will increase stress among companies across the oil and gas (O&G) industry.”
It said banks in Singapore, Malaysia, Japan and South Korea had the largest exposures to borrowers affected by changes in oil prices in Asia.
However, they are better positioned against the latest oil crisis than the previous downturn in 2014-2015, partly because they have since reduced exposures to such borrowers.
“Singaporean banks have extensively provisioned for exposures to the riskiest O&G companies, but risks linger. This is highlighted by an April default by a major oil trading company in the energy hub in Asia.
“Malaysian banks’ O&G exposures are also prone to stress. Although banks have already classified a large share of exposures to O&G companies as impaired or special mention loans and cut lending to the sector, they can suffer impairments as low oil prices strain financials at such borrowers.”
It added that exposures to privately-owned upstream companies posed greatest risk to Japanese megabanks.
The financial health of these companies will worsen without the benefits of government help, leading to a deterioration of asset quality and increases in credit costs at the banks.
Moody’s also said South Korean banks were indirectly exposed via shipbuilding and construction sectors.
In China, it said asset risks from exposures to the O&G sector were limited, but the collapse of oil prices had caused reputational damage for banks selling structured products linked to oil prices.