Moody's 2020 outlook for Asia-Pacific banks negative

Moody's Investors Service's outlook for the banking industry in Asia Pacific (AsiaPac) is negative over the next 12 months as the US-China trade dispute will weaken economic and trade activity in the region, and erode investor confidence.

SINGAPORE: Moody's Investors Service's outlook for the banking industry in Asia Pacific (AsiaPac) is negative over the next 12 months as the US-China trade dispute will weaken economic and trade activity in the region, and erode investor confidence.

"Weaker economic and trade conditions will lead to moderate increases in problem loans for AsiaPac banks," says Eugene Tarzimanov, a Moody's vice president and senior credit officer.

"Meanwhile, the banks' profitability will fall, because they are raising credit provisions while central banks are cutting interest rates to support economic growth, ” he said.

Nevertheless, Moody's says that Apac banks have generally maintained good capital and liquidity buffers and the probability of government support for these banks will stay high, except for the banks in Hong Kong, because the territory is the only jurisdiction in AsiaPac with an operational resolution regime.

Moody's conclusions are contained in its just published 2020 outlook for the 17 banking systems in Asia Pacific, namely, Australia, Bangladesh, China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, Mongolia, New Zealand, the Philippines, Singapore, Sri Lanka, Taiwan, Thailand and Vietnam.

Moody's points out that while high private sector leverage poses a risk to many AsiaPac economies, the buildup in leverage is generally moderating.

The rating agency also said most AsiaPac banking systems have passed Moody's stress test on capital, except for the banks in India, Mongolia, Sri Lanka and Vietnam, because banks in these jurisdictions have lower starting capital ratios and higher starting problem loan ratios.

Moody's report also says that environmental, social and governance risks will increasingly affect the creditworthiness of AsiaPac banks.