KUALA LUMPUR: Overall credit strength across South and Southeast Asia will remain stable over the next 12-18 months, although US dollar strength would weigh on the credit quality for a subset of rated companies with structural currency mismatches, according to Moody’s Ratings.
In its latest report on nonfinancial companies in South and Southeast Asia released today, the rating agency said most rated issuers (83 per cent) either lack material foreign exchange exposure or have sufficient financial buffers to withstand further depreciation.
Moody’s noted that Malaysia’s ringgit and Thailand’s baht have appreciated against the US dollar over the past year, supported by strong commodity exports and capital inflows into manufacturing. By contrast, Indonesia’s rupiah and India’s rupee have fallen to record lows against the US dollar, while the Philippine peso has also depreciated significantly, with all three currencies declining by between 10 per cent and 12 per cent over the past year.
It said currency depreciation across South and Southeast Asia has intensified through 2025 and 2026, driven by the escalating West Asia conflict and associated oil-price shock, US tariffs and outflows of foreign capital.
According to the report, the credit effects of currency depreciation reflect differences in revenue and cost currency profiles.
It said sectors with significant US dollar-denominated costs and predominantly local-currency revenues, notably airlines and Indian oil marketing companies, face the greatest pressure given limited natural hedges.
Conversely, companies with US dollar-linked revenues, including those in mining, commodity and information technology services sectors, have benefited from a natural hedge that supports local-currency profit margins during periods of depreciation. "Exporters also benefit as their products and services become more price competitive in international markets," it added.
Moody’s said companies with substantial US dollar debt and largely domestic revenue bases are exposed to higher debt-servicing costs and increased repayment obligations when local currencies weaken against the greenback. By contrast, US dollar-linked revenues provide a natural hedge for mining, commodity and infomation technology services companies, supporting local-currency profit margins during periods of depreciation, it added.
"Conversely, companies with largely domestic revenue bases and substantial US dollar debt are at risk of higher debt-servicing costs and inflated repayment obligations,” it said.
Despite this pressure, Moody’s said it does not expect interest expenses for rated companies to rise significantly because policy rates across much of the region have already risen over the past three years in line with the US Federal Reserve’s tightening cycle, limiting incremental increases in borrowing costs.
However, companies that rely on foreign-currency debt could face higher hedging costs if the US dollar remains strong, increasing overall financing expenses despite stable base interest rates, said the rating agency. - Bernama
