S&P: Asset quality pressures to persist for Asia-Pacific in '13

In contrast to Europe and the US, private-sector credit in Asia-Pacific has grown over the past several years: Ritesh Maheshwari

 

The factors that constrain the asset quality of banks in Asia-Pacific, including India, will persist in 2013, according to global rating agency Standard and Poor's (S&P).

The region's economy may show a moderate recovery in 2013 after a sharp drop in growth in 2012, it said. However, global factors such as negative gross domestic product growth in the Euro zone will continue to weigh on growth in Asia-Pacific, S&P added.

According to the agency, a few debt-laden corporate and household sectors in the region remain susceptible to external shocks. Outlooks on the ratings on half of the banks in Japan and all of the banks in India are negative, reflecting negative outlooks on these sovereign ratings, S&P said. The other sovereign ratings in the region have stable outlooks.

Ritesh Maheshwari, S&P's credit analyst, said, "Hikes in property prices, some fuelled by easy monetary conditions in the global market, pose additional risk to banking systems in many countries." He said, "In contrast to Europe and the US, private-sector credit in Asia-Pacific has grown over the past several years."

He said the fast pace of loan growth, particularly in emerging markets, could encourage excess investment and lead to economic imbalances. The low interest rate environment and intense competition are squeezing banks' loan margins. Hence, the banks will feel compelled to execute cautious credit control as well as proper pricing and growth strategies.