Moody's retains negative outlook on Asia-Pacific banks for 2017

Rating agency Moodys Investors Services said on Tuesday that its outlook for banks in the Asia-Pacific region remains negative for 2017 based on the assumption of a difficult operating environment impacting banks' asset quality and profitability.

"Problem assets will rise from a generally low level, due to previous rapid credit expansion, elevated corporate and household leverage in some economies, the ongoing recognition of credit problems, and challenges in commodities and cyclical industries," Moody's Managing Director Stephen Long said in a statement here.

"Foreign private capital flows will remain volatile in emerging Asia, pressuring domestic currencies and weakening operating conditions for the banks," he said.

"And, property price increases in parts of Asia Pacific will further amplify credit risk for the banks," Long added.

Of the 16 banking systems in Asia-Pacific which Moody's analysed, six carry negative outlooks as compared with three in early 2016. These six systems are Australia, China, Hong Kong, Korea, Mongolia and Singapore.

The stable outlooks for the remaining 10 systems reflect the banks' greater resilience against higher solvency risks, Moody's said. These are India, Indonesia, Japan, Malaysia, New Zealand, Philippines, Sri Lanka, Taiwan, Thailand and Vietnam.

"We expect uneven economic growth in APAC (Asia-Pacific), with risks skewed to the downside; most economies growing at lower rates than their long-term averages," the report said.

"GDP growth slowdown is most pronounced for small and open economies such as Taiwan, Singapore and Hong Kong. By contrast, Australia, India, New Zealand and Vietnam are more resilient," it added.

On Indian banks, the American rating agency has a stable outlook across parameters such as capital, asset quality, operating environment funding and liquidity, profitability and efficiency, and government support.

The report, however, said Indian banks display one of the highest non-performing asset (NPA), or bad loans, ratio in corporate loans at nearly 9.5 per cent, second only to Mongolia's 12.5 per cent.

As a share of total gross loans, Indian banks have one of the highest exposures to the metals and mining sector, which means that their profitability is deeply impacted by any adverse developments in those sectors, it said.

In a sensitivity test where the EBITDA (earnings before interest, taxes, depreciation and amortisation) falls by 25 per cent and the funding costs rise by 25 per cent, Indian companies would prove to be some of the weakest ones in the region, with Japanese firms being the strongest, the report added.

--IANS

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