Thai banks join regional peers in showing strengths: Moody's
Thai banks and their counterparts throughout Asia Pacific will remain largely insulated from the negative credit pressures affecting their peers in many Western economies, thanks to strong capital base and macro-economic recovery at home, said Moody's Investors Service.
In the "Asia Pacific Banking Outlook 2013" report, the rating agency noted that for individual banking systems, any cyclical rise in non-performing loans (NPLs) will be modest for banks in several export-related economies, such as Hong Kong, Singapore, Taiwan, Malaysia, Korea and Thailand. This is thanks to macroeconomic recovery.
However, in these markets, tightening liquidity (except for Korea, where Moody’s expects loan-to-deposit ratios to continue to decline) will remain a feature as these banks’ dollar loan books will keep outstripping deposit gathering in their own currencies.
Equipped with more cash, Asian companies are now branching out from their home countries to support business expansion.
The report examines the trends for the banking system in 14 countries. While Thailand is among 11 that show stable outlooks, the Philippines exhibits a positive outlook, and India and Vietnam negative outlooks.
"We consider that this stable outlook is driven mainly by the region’s economic resilience; its relatively accommodative monetary policy; and the banks’ own strong liquidity when compared to global norms, as well as their relatively robust capital buffers," says Stephen Long, the managing director for Moody’s Financial Institutions Group in Asia Pacific.
"For the region, in terms of specifics, we consider that the economic recovery from the troughs reached in mid-2012 will continue in much of the region in 2013. At the same time, interest rates will remain low, making an asset quality shock unlikely during this year in most Asian countries. In addition with liquidity, the vast majority of Asian banks are ready to adopt Basel III capital standards, which are being implemented in much of the region in 2013, even though some Asian regulators have announced delays."
In terms of individual banking systems, the report says that with the Chinese banks, the risks of a systemic crisis materialising in 2013 are low. And while loans to real estate developers and to local government financing vehicles (LGFV) will remain sources of long-term asset quality concerns, Moody’s sees the risks of significant distress in 2013 as contained, respectively by a recovering real estate sector and the Chinese government’s active management of the LGFV refinancing process.
With Japan, the credit conditions for its banks will remain stable despite a generally weak economic outlook. The major banks will continue to take advantage of their relatively strong financial profiles and the retreat of European banks by expanding overseas, both in terms of their loan books and in terms of strategic investments.
With the positive outlook for the Philippines, Moody’s says its banking system will remain relatively immune to global shocks and continue to benefit from steady credit growth. Indonesia shares many of these positive attributes, but Moody’s stable system outlook includes more policy uncertainty, as well as greater risk of asset quality pressures due to relatively rapid recent loan growth.
At the other extreme, Vietnam and India have negative outlooks. The Vietnamese system is in much worse shape than India’s and there is a reasonably high probability that the government will need to step in and take measures to address the issue of high NPLs, or face the negative economic consequences of a banking system that cannot support credit growth.
And in India, impaired loans are yet to peak among public sector banks. While the government is likely to remain supportive, relatively high inflation and modest fiscal capacity mean that policy options are constrained.