Banking faces economy, industry risks: S&P

Global rating agency, Standard & Poor's (S&P) today said banking systems in India and other Asian countries face medium-to-high economic and industry risks, unexpected shocks, and "the inevitable" future cyclical slowdown.

In its Banking Industry Country Risk Assessment (BICRA), S&P listed
persistently high oil prices, rising interest rates and asset repricing
among the key risks facing India and other Asian banking systems.

The Indian banking sector, it said, has a moderately high-risk profile by
global standards. Recent banking reforms have tightened operational,
prudential, and accounting standards. The Securitisation Act and the
corporate-debt restructuring mechanism aided the recovery of NPLs and have also improved the banks' ability in limiting future non-performing loans (NPLs).

Fragmented industry structure and hurdles in improvement of manpower and infrastructure productivity remain key weaknesses that hinder the sector's ability to leverage on economic growth to sustain improvements in its risk profile, said the report which placed India in Group 6 in its rankings of banking systems from Group 1 (strongest) to Group 10 (weakest). China is placed in Group 7.

"The situation in Asia reflects the improved financial profiles of banks
across the region," Ritesh Maheshwari, credit analyst at S&P, said.

Nevertheless, Asian banking systems continue to face medium-to-high economic and industry risks, unexpected shocks, and the inevitable future cyclical slowdown, Maheshwari said.

Despite reaping the benefits from having strong economic activities,
regulatory improvements, and more robust banking systems, risks remain, S&P said.

"An economic slowdown would be the litmus test for the banks'
credit-risk-management systems, though it should be noted that banking
systems will face the potential challenges from a position of strength,
given the structural improvements made since the Asian financial crisis,"
Ping Chew, credit analyst for S&P, said.