Bangkok--25 Jun--Moody's
Moody's Investors Service says that its industry outlook for banking systems in Southeast and South Asia is negative, reflecting the impact of the slowdowns in global and domestic economies on the region's banks.
"The slowdowns are clearly making themselves felt on the performances of banks in Southeast Asia and India," says Jerry Chien, MD for Moody's Financial Institutions Group in Asia Pacific. By contrast, ratings outlooks vary, between stable and negative.
Chien was speaking on the release of Moody's latest annual Asian Banking System Outlook, which covers 16 jurisdictions. The report is authored by senior analysts with the Moody's Financial Institutions team.
In Thailand, the banks' intrinsic financial strength remains adversely affected by the protracted economic crisis and ongoing domestic political instability, the report says. The presence of high credit risk concentrations in some sectors heightens their risk profiles, making losses and write-down requirements more unpredictable.
In Indonesia, over the next 12 months, the banks will face increasing pressure -- particularly from asset quality -- although they will fare relatively better as the economy slows, rather than contracts, the report says.
Rapid loan growth, averaging 20% annually over the past five years, could further be a potential source of higher credit costs. These newly underwritten loans will test upgraded risk management systems.
Furthermore, restructured loans -- although much reduced -- are vulnerable to a downturn and could be a problem for state-owned banks.
In Malaysia, loan demand will soften and credit costs will rise as less robust earnings weaken the repayment capabilities of borrowers, the report says. There is also keen competition -- which will pressure product margins -- while a weaker property market could reduce the recovery prospects of problem loans.
In Singapore, loan demand has softened, while credit costs are rising as the repayment capabilities of borrowers have been gradually impacted, the report says. Market-sensitive income is also likely to remain volatile.
In the Philippines, loan growth will slow, but probably stay positive, while falling interest rates are placing additional pressure on bank margins. Furthermore, the challenges in the economic and financial markets will depress bank earnings and pressure asset quality, but no significant credit losses are expected.
With India's banking system, rising loan delinquencies -- against the backdrop of a slowing economy -- are challenging the banks' asset quality and profitability, while some public-sector banks may need fresh capital, which could come from the Indian government, the report says.
At the same time, Indian banks are free of any toxic assets and have generally weathered the international financial crisis relatively unscathed. They enjoy good funding and liquidity profiles, although earnings quality still needs improvement.
For Asia's banks as a whole, when looking at their prospects, the Moody's report sees challenges in light of the severe and protracted nature of the current global recession.
Indeed, the widespread presence of negative industry outlooks across the banking systems covered by Moody's in the region reflects our basically cautious stance over the next 12 months.
Moreover, while mildly positive macro-economic indicators and signs of a stock market rebound have recently emerged, the unprecedented nature of the financial crisis raises questions over the certainty of a swift recovery.
Another significant uncertainty is whether the recent surge in wealth across Asia can generate sufficient levels of consumption to compensate for the lower demand from the US and other developed economies, traditionally the significant buyers of Asia's goods.
But it is also important to note the significant steps taken since the Asian financial crisis and the fact that standards for accounting, transparency, governance, risk management and regulation have all improved markedly throughout the region.
The report is entitled, "Asia Banking Outlook 2009". It can be found at www.moodys.com