Emerging Asia, Asean banks have stronger credit profiles, says Fitch

KUALA LUMPUR: Emerging Asia sovereigns and Southeast Asian banks have relatively stronger credit profiles now compared with before the 1997/98 Asian financial crisis despite them facing increasing risks from slowing global economic growth and a build-up in credit, Fitch Ratings' sovereign and banking analysts argue.

“Sovereign and external balance sheets are generally stronger than before the 1997 Asian crisis, but vulnerabilities have arisen in other areas,” Fitch head of Asia-Pacific sovereigns Andrew Colquhoun said.

“Global trade volumes have recovered much more slowly than in previous US recoveries, contributing to weak Thai and broader emerging-market growth,” he pointed out at the agency's annual conference in Bangkok today. 

Noting that the global environment had become tougher for emerging markets, Colquhoun said high private-sector debt levels in many countries, were a drag on domestic demand.

“Investor sentiment towards emerging market has worsened as the US Federal Reserve prepares to raise US interest rates,” he said. 

Meanwhile, Fitch's head of financial institutions for South and Southeast Asia, Ambreesh Srivastava, noted that downside risks in many Asean banking systems had risen due to a collapse in commodity prices, currency weaknesses, and the after-effects of rapid credit growth, rising household debt and increased China-related risks built over the years. 

”Most Asean banks, though, have built up strong loss-absorption buffers to cope with a normal economic slowdown and hence have ‘stable’ rating outlooks,” Srivastava said.