MOODY’S Investors Service says that it sees a stable outlook for banks in Asia Pacific (APAC) over the next 12 months.
“The banks’ creditworthiness will stay broadly stable in 2019 because of the still-healthy economic fundamentals and good credit buffers,” said Eugene Tarzimanov, a Moody’s vice president and senior credit officer.
In particular, Moody’s says that the APAC banks’ capital, provisions and profit will provide sufficient loss-absorbing buffers, while funding and liquidity will remain stable.
“In addition, recent developments on bank resolutions in APAC cement our view that government support for the banks will stay strong, and that senior creditors will not be required to pay for bank rescues – although Hong Kong remains an exception,” adds Tarzimanov.
Moody’s conclusions are contained in its just-released report titled, “Banks – Asia Pacific: 2019 Outlook Remains Stable as Banks Maintain Sufficient Buffers Against Growing Headwinds”, which is authored by Tarzimanov.
But Moody’s report also notes that APAC banks will face more challenging economic and market conditions in 2019.
Moody’s says that GDP growth in APAC has peaked and will moderate, and credit expansion will continue to slow down, with the trade conflict between China and the US posing a risk for the banks.
Moody’s also explains that private-sector leverage remains high in many APAC economies, exposing the banks to the risk of asset quality impairment as interest rates continue to rise. Nevertheless, growth in private-sector credit has slowed, with some markets de-leveraging.
The banks continue to remain exposed to property-related risks, despite real estate prices neither falling nor posting slower growth in APAC. Moody’s says that loans for real estate investment purposes represent the greatest risk for banks in Australia, New Zealand, Korea and Malaysia.
Moreover, capital flows in and out of Asian financial markets have been volatile, and further tightening in US Dollar liquidity could have an adverse effect on corporate debt repayment capacity.
Overall, the banks will have sufficient buffers against growing risks.
Moody’s also says that technological advancements will reshape the business models of APAC banks in the coming years, with digitisation helping the banks scale down their branch networks and lower costs.
Also, banks in APAC will stay active issuers of green bonds, although growth in green financing has slowed in 2018.