Asset quality pressures intensifying in India, emerging markets: Fitch

Lower interest rates, robust economic conditions to bolster near-term asset quality

Global rating agency Fitch today said that rapid credit growth and historical risk-taking have intensified asset quality pressures in emerging markets like India and Vietnam. However, robust economic conditions and lower interest rates are expected to bolster near-term asset quality.

 

There is anticipation of an improvement in non-performing loan (NPL) ratios in India and Vietnam, the rating agency said in a commentary on Asia-Pacific (APAC) banks’ risk appetite and asset quality.

 

Fitch stated that it expects asset quality risks to broadly recede over 2025-2026 as interest rate cuts take effect and economic momentum continues. That said, borrower segments such as retail loans, small and medium enterprises (SMEs), and commercial real estate (CRE) are likely to remain the most vulnerable, it added.

 

“We believe bank Viability Ratings (VR) have sufficient headroom to absorb further deterioration—where we expect any—in the next two years, but there are exceptions around the region. Other aspects of bank intrinsic credit profiles could also weigh on the VRs. Even if bank VRs are downgraded, Issuer Default Ratings (IDRs) may still be unaffected due to external support,” it said.

 

Meanwhile, Fitch, in its credit analysis of cement companies, said that most APAC cement producers’ financial profiles will remain stable in 2025 despite still weak demand in China and increased competition in India.

 

The Indian cement industry is undergoing significant consolidation, leading to increased competition and higher leverage for major producers. UltraTech Cement (BBB-/Stable), India’s largest producer, and its competitor, the Adani Group, are rapidly adding capacity through organic means and mergers and acquisitions (M&A) while gaining market share. “However, we expect the two groups to focus on maintaining healthy profitability and financial metrics, keeping competition under control,” the agency observed.

 

The ratings for most APAC cement producers are likely to remain steady, except for West China Cement Ltd (WCC), reflecting the strong market positions and financial stability of most rated companies.