The 25 basis point increase in the Overnight Policy Rate (OPR) will benefit fixed deposit (FD) savers after the real rate of return on deposits will return to positive in 2018.
KUALA LUMPUR: The implementation in Asia Pacific (APAC) banking systems of the International Financial Reporting Standard 9 (IFRS 9) will have a credit neutral impact on banks' credit profiles, says Moody's Investors Service.
The rating agency said on Tuesday the reason being the small reductions in capital ratios are offset by improved problem loan coverage.
"The transition to IFRS 9 so far has resulted in average declines of 10 basis points in the banks' Common Equity Tier 1 (CET1) ratios, a very manageable outcome that is more modest than the impact on European banks," said Eugene Tarzimanov, a Moody's vice president and senior credit officer.
"In addition, credit provisions have increased at many APAC banks while impaired loans have remained unchanged, resulting in higher impaired loan coverage ratios and offsetting reductions in their capital buffers,” he added.
Moody's conclusions are contained in its just-released report "Banks - Asia Pacific: Capital takes a modest hit under IFRS 9 but provisioning improves".
Moody's report explains that the APAC banking systems are at varying stages of the implementation of IFRS 9, depending on banks' readiness to deal with complex accounting models, the timing of fiscal years, and the existence of asset quality issues.
Developed systems are leading the way, with IFRS 9 having come into effect on Jan 1, 2018 in Hong Kong, Singapore, Korea and Taiwan, while implementation in Australia and New Zealand will be completed by the end of the year.
Most emerging markets are set to follow in the coming years, with the exception of banks in Malaysia and the Philippines which have already implemented the new standard.
Moody's points out profitability will become more volatile under IFRS 9 when the credit cycle turns, as new credit provisions will be more sensitive to the migration of assets between different stages, as well as to changes in banks' macroeconomic assumptions embedded in their models.
“Finally, Moody's says IFRS 9 at this stage does not materially affect the banks' fundamentals. As a result, Moody's does not expect any changes to the baseline credit assessments (BCAs) and credit ratings that it assigns to IFRS 9-compliant banks in APAC.
Moody's report covers the banking systems of Australia, Bangladesh, China, Hong Kong, India, Indonesia, Korea, Malaysia, Mongolia, New Zealand, Philippines, Singapore, Sri Lanka, Taiwan, Thailand and Vietnam.
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