KUALA LUMPUR: Emerging Asia’s banking sectors are well positioned to weather the financial fallout from a strong El Niño, supported by robust earnings and strong capital buffers, S&P Global Ratings said in a report.
The report, "Asia's Emerging Market Banks Have The Buffers To Weather El Nino," notes that while the climate phenomenon could reduce Asia's agricultural output, cause water shortages, disrupt hydro power, damage infrastructure, and interrupt some business activity.
However, it expects the impact to remain largely localised rather than systemic.
“Policymakers have the tools and flexibility to mitigate the harshest financial fallout, though a marginal deterioration in asset quality is probable,” said S&P Global Ratings analyst Geeta Chugh.
S&P said China’s policy flexibility and regional economic diversity should limit the risk of systemic stress, while India’s manageable systemwide risks would help contain the impact of localised rural weakness.
Vietnam, meanwhile, faces uneven credit risks concentrated around state-owned institutions, while Mongolia’s commodity momentum could outweigh risks associated with extreme winter weather.
In Bangladesh, refinancing schemes and banks’ limited exposure to agriculture should help contain risks, while Cambodia’s stimulus package provides a partial buffer.
Indonesia’s banks are also well placed to absorb potential credit losses, supported by strong capital ratios, S&P said.
