Asia-Pacific's largest banks can contend with slowing regional growth

A slowing China and increasing trade uncertainties are dragging on growth for Asia-Pacific economies in 2019.

MELBOURNE: A slowing China and increasing trade uncertainties are dragging on growth for Asia-Pacific economies in 2019. 

In S&P Global Ratings' view, Asia-Pacific's top banks can weather the slower growth as well as the more dovish outlook for interest rates.

That's according to "Top 60 Asia-Pacific Banks: The Long Credit Cycle Lumbers On," a report published on Thursday by S&P Global Ratings.

The rating agency recently lowered its Asia-Pacific growth forecast to 5.1% in both 2019 and 2020, from 5.2%. In many Asia-Pacific economies, central banks have begun to ease.

"Even considering these headwinds, we expect profitability prospects in 2019 for a majority of the top banks also remain little changed from 2018," said Gavin Gunning, a credit analyst at S&P Global Ratings. 

"We expect that for about two-thirds of our top 60 banks, the change in net interest margins will be negligible for calendar 2019 compared with 2018. We also expect asset quality prospects to remain largely contained in 2019 with stable prospects for a majority of the Top 60 through 2019 and into 2020."

A negative interest rate environment and intensifying competition continue to constrain bottom-line growth for Japanese banks, making them the amongst the weakest in the region from a profitability standpoint. 

"That said, we expect capital levels to be rigid at or about current levels despite pressure on profitability.

"We expect interest margins for Chinese banks to remain constrained by heightening deposit competition and policy guidelines for banks to lower lending rates for certain sectors of the real economy. Corporate lending also shows signs of slowing," Gunning said.