Bangkok--22 Jun--Moody's
Moody's Investors Service hosted its annual 'Global Banking & Sovereign Conference' in Singapore today, presenting on key global and regional issues following the global financial crisis.
The conference focused on the global sovereign landscape; prospects for South East Asia's sovereigns; key banking lessons from the crisis; a comparison of the banking systems of Southern Europe, Ireland and the UK; and the outlook for South East Asian banks.
Setting the global scene, Bart Oosterveld, Team Managing Director and global head of Moody's Sovereign Risk Unit, discussed 'Global Sovereign Risk in a State of Flux'.
He explained why the balance sheets of the governments of most advanced economies have become materially weakened, yet only limited downgrades have happened to date; the implications of living with higher sovereign debt levels; and why the ratings of emerging countries are on the way
up, but at a pace slower than capital inflows and market spreads would seem to suggest.
"Institutional strength has been a significant consideration in recent emerging market upgrades. Rating drivers for advanced economies have focused on the painful adjustment needed to stabilize or reduce the debt burden," Bart explained.
Singapore-based Tom Byrne, Senior Vice President - Regional Credit Officer, Moody's Sovereign Risk Group then provided Moody's views on 'Asia's recovery from the Global Crisis', giving the economic outlook for the region, and discussing the performance of South East Asian ratings during the crisis and in its aftermath.
"Sovereign credit fundamentals in the region have withstood the global turbulence of the past two years," said Tom Byrne. "External positions are stronger now, reflecting a robust rebound in exports and resulting in record levels of official foreign exchange reserves for most countries in recent months. Moreover, fiscal deficits have been moderate and the build-up in debt for most governments has been modest. In South East Asia we have upgraded Indonesia and the Philippines since mid-2009, while the
two negative rating outlooks on Vietnam and Thailand were not prompted by the global financial crisis or Europe's debt problems."
The focus of the conference then turned to the banks with remarks fromGreg Bauer, Group Managing Director and Global Head of Financial Institutions for Moody's.
Greg discussed 'Six Banking Lessons from the Global Financial Crisis', and specifically the challenges of assessing risk management and capital adequacy; liquidity and the limits of wholesale funding; and what changes we should expect in relation to government support.
"Bank depositors and senior debt holders have benefited from massive government support throughout this crisis" said Greg. "However, the future capacity and willingness of most governments to provide support will be more limited, arguing for more conservatism in our assumptions of support. As such, the fundamental issues that led to structural weaknesses in the global banking system, including excessive reliance on wholesale funding, liquidity mismatches, poor measures of capital adequacy, and risk management failures, require particular focus as we access the creditworthiness of banks as they emerge from the crisis".
The spotlight then moved to Europe, for a comparison of Southern European, Irish and UK banks in a discussion led by London-based Johannes Wassenberg, Team Managing Director, Moody's EMEA Financial Institutions.
Johannes addressed two key rating drivers -- asset bubbles versus sovereign contagion -- as well as the rating implications of the phase-out of extraordinary government support; and the rating outlooks for these banking systems, and in particular which vulnerabilities remain.
"Europe's problems are expected to have limited second order effects on Asia's banks, reducing, but not reversing growth in exports and GDP. Of greater concern, are signs that Europe's problems may renew the credit crunch. Whilst the vast majority of Asian banks are funded by domestic deposit, banks in Australia, New Zealand and Korea rely on the cross-border debt markets to fund a portion of their loans", commented Deborah Schuler, Singapore-based Senior Vice President - Regional Credit
Officer, Moody's Asia Pacific Financial Institutions.
Deborah concluded the day's presentations with a discussion on 'Basel & Bubbles: What Lies Ahead for Asian banks?' She addressed how Asia's banks will fare under tighter capital and
liquidity requirements, whether asset price bubbles would derail the recovery, and are Moody's rating outlooks for South East Asian banks vulnerable or bulletproof?
"With the exception of Vietnam and Cambodia, our South East Asian banking system outlooks are stable. NPLs have peaked at much lower levels than expected. Bank revenues are growing and should continue to do so as long as China's economic growth does not drop abruptly. The region's banks are
well positioned to cope with the Basel III capital and liquidity requirements, thanks to their strong capital levels, traditional banking franchises and customer deposit funded loan portfolios."
Moody's will also host its annual Global Banking & Sovereign Conference in Hong Kong on June 24, Shanghai on June 29 and Beijing on June 30.