[ET Net News Agency, 5 December 2018] 2019 is shaping up as a more difficult year for
Asia-Pacific banks. However, the majority of S&P Global Ratings' outlooks on banks in the
region are currently stable and its base case is that the banks will most likely weather
the more difficult credit conditions at their current rating levels, according to
"Asia-Pacific Banking Outlook 2019--Headwinds Are Picking Up," an article published today
by S&P Global Ratings.
"We see little rating upside during 2019 but some notable downside risks that
potentially could affect ratings," said Gavin Gunning, a credit analyst at S&P Global
Ratings. "While we expect that most banks can contend with a moderate and gradual negative
turn in the credit cycle at current rating levels, a significant and abrupt credit cycle
downturn would likely result in negative rating momentum for some Asia-Pacific banks."
Many Asia-Pacific banking jurisdictions are at, or slightly past the peak, of what has
been an extraordinarily long credit cycle. China has been on a very strong credit growth
path since the Global Financial Crisis when it put together a RMB4 trillion stimulation
package to support its economy; and Australia has, rather astonishingly, not had an
economic recession for 27 years.
More generally, the effects of the global financial crisis beginning in 2008 were more
muted in the Asia-Pacific region than in the U.S. or Western Europe.
"A combination of high debt and high asset prices that has evolved over much of the
Asia-Pacific region during a protracted period of low interest rates is a natural red flag
for the future credit standing of Asia-Pacific banks," said Gunning.
Strong growth in debt across the region has manifested in many forms. Household debt is
high in some jurisdictions, including Australia, New Zealand, Korea, Malaysia, Singapore,
and Thailand; while growth in corporate sector debt has been strong in China.
Property is a continuing key risk factor across numerous jurisdictions in
Asia-Pacific--including China, Hong Kong, Australia and New Zealand--even if concerns have
ameliorated, to some extent recently, in some markets.
Asia-Pacific banks are in reasonable shape, by international standards, as headwinds are
picking up leading into 2019. S&P believes most banks can withstand some diminution in
asset quality ratios during 2019 with no negative adjustment to ratings, although a
negative step change in credit because of an escalation of downside risks will contribute
to negative rating changes. (KL)