[ET Net News Agency, 6 December 2018] Moody's Investors Service said that its outlook
for banks in the Asia Pacific (APAC) is stable over the next 12 months.
"The banks' creditworthiness will stay broadly stable in 2019 because of the
still-healthy economic fundamentals and good credit buffers," said Eugene Tarzimanov, a
Moody's Vice President and Senior Credit Officer.
In particular, Moody's said that the APAC banks' capital, provisions and profit will
provide sufficient loss-absorbing buffers, and funding and liquidity will remain stable.
"In addition, recent developments on bank resolution in APAC cement our view that
government support for the banks will stay strong, and that senior creditors will not be
required to pay for bank rescues; although Hong Kong remains an exception," added
Tarzimanov.
Moody's conclusions are contained in its just-released report titled "Banks - Asia
Pacific: 2019 outlook remains stable as banks maintain sufficient buffers against growing
headwinds," and is authored by Tarzimanov.
But Moody's report also points out that APAC banks will face more challenging economic
and market conditions in 2019.
Moody's said that GDP growth in APAC has peaked and will moderate, and credit expansion
will continue to slow down, with the trade conflict between China and the US posing a risk
for the banks.
Moody's also explains that private sector leverage remains high in many APAC economies,
exposing the banks to the risk of asset quality impairment, as interest rates continue to
rise. Nevertheless, growth in private sector credit has slowed, with some markets
deleveraging.
And, the banks remain exposed to property-related risks, despite the fact that real
estate prices are either falling or posting slower growth in APAC. Moody's said that loans
for real estate investment purposes represent the greatest risk for banks in Australia,
New Zealand, Korea and Malaysia.
Moreover, capital flows in and out of Asian financial markets have been volatile, and
further tightening in US Dollar liquidity could have an adverse effect on corporate debt
repayment capacity.
Overall, the banks will have sufficient buffers against growing risks.
Moody's also said that technological advancements will reshape the business models of
APAC banks in the coming years, with digitization helping the banks scale down their
branch networks and lower costs.
And, banks in APAC will stay active issuers of green bonds, although growth in green
financing has slowed in 2018. (KL)