Moody's stress test shows India, Indonesia most vulnerable


  • Banking
  • Monday, 30 Sep 2019

Under Moody's stress scenario, capital ratios would decline by one to four percentage points in most economies, leaving banks with sufficient buffers. Among the 13 banking systems, Indian banks were the most vulnerable.

KUALA LUMPUR: Banks in India and Indonesia are most prone to a deterioration in corporate debt repayment capacity, followed by banks in Singapore, Malaysia and China, according to Moody's Investors Service stress test.

The stress test was based on an assumption of a 25% decline in earnings before interest, tax, depreciation and amortistion (Ebitda), according to Rebaca Tan, a Moody's assistant vice president and analyst.

Under Moody's stress scenario, capital ratios would decline by one to four percentage points in most economies, leaving banks with sufficient buffers. Among the 13 banking systems, Indian banks were the most vulnerable.

Her comments were contained in a statement issued by the rating agency on Monday where it raised concerns about high corporate leverage across Asia Pacific.

Moody's pointed out this higher leverage was posing increasing risk to the region's banks, as slower economic growth and rising trade and geopolitical tensions could weaken debt servicing abilities.

“Corporate default rates in Asia Pacific have been low so far, helped by low interest rates and favourable financing conditions, but the intensifying trade and geopolitical tensions are weighning on the global economy and supply chains

amid already slowing growth,” Tan said in a report.

Total corporate debt across the 13 economies covered by Moody's report grew only 1% year over year in US dollar terms at the end of 2018, the slowest pace since the global financial crisis.

Yet, overall corporate leverage remained high relative to GDP in many of the region's economies.

Moreover, outstanding debt was heavily concentrated among corporates that hold debt more than four times Ebitda, raising the risk of rising defaults as operating conditions weaken.

“Somewhat mitigating these risks are the strong buffers kept by most Asia Pacific banks, in the form of both loan loss reserves and capital, to withstand a sharp deterioration in asset quality,” the report said.

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stress tess , leveraged , Asia Pacific , Moody's

   

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