KUALA LUMPUR: Moody's Investors Service sees loans for real estate investment purposes represent the greatest risk for banks in Australia, New Zealand, South Korea and Malaysia.
The rating agency said on Thursday banks remain exposed to property-related risks, despite that real estate prices are either falling or posting slower growth in Asia Pacific.
Moody's added while the outlook for banks in Asia Pacific is stable over the next 12 months it expects operating conditions to be more challenging.
The rating agency pointed out GDP growth in Asia Pacific has peaked and will moderate, and credit expansion will continue to slow down, with the US-China trade conflict posing a risk for the banks.
“Private sector leverage remains high in many Asia Pacific economies, exposing the banks to the risk of asset quality impairment, as interest rates continue to rise. Nevertheless, growth in private sector credit has slowed, with some markets deleveraging,” it said.
Its conclusions are contained in its just-released report titled "Banks - Asia Pacific: 2019 outlook” which was authored by Eugene Tarzimanov, a Moody's vice president and senior credit officer.
“Moreover, capital flows in and out of Asian financial markets have been volatile, and further tightening in US Dollar liquidity could have an adverse effect on corporate debt repayment capacity,” it said.
Overall, the banks will have sufficient buffers against growing risks.
Moody's said technological advancements will reshape the business models of Asia Pacific banks in the coming years, with digitisation helping the banks scale down their branch networks and lower costs.
Banks in Asia Pacific will stay active issuers of green bonds, although growth in green financing has slowed in 2018.
Tarzimanov said the banks' creditworthiness will stay broadly stable in 2019 because of the still-healthy economic fundamentals and good credit buffers.”
In particular, Moody's says the banks' capital, provisions and profit will provide sufficient loss-absorbing buffers, and funding and liquidity will remain stable.
"In addition, recent developments on bank resolution in Asia Pacific cement our view that government support for the banks will stay strong, and that senior creditors will not be required to pay for bank rescues; although Hong Kong remains an exception," Tarzimanov said.
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