APAC bank profitability under pressure - Moody's

    Moody's Investors Service said that the subdued global economic outlook is posing challenges for Asia Pacific banks, with the ongoing trade tensions, slowing economic growth and an uncertain geopolitical environment set to create more volatile operating conditions.
  The conclusions are part of this year's Moody's annual banking conference, which took place in Singapore on 3 October, and is still scheduled for Hong Kong (16 October), Shanghai (23 October) and Tokyo (29 October).
  "The operating environment is deteriorating across the major APAC banking systems, with profitability under pressure in most systems," said Stephen Long, Managing Director for Moody's Financial Institutions Group.
  "Nevertheless, most banks in the region are well-positioned to withstand these challenges, supported by strong liquidity and capitalization -- a testament to measures taken in various systems over the years to build adequate buffers against shocks," adds Long. 
  By system, Moody's outlook for China's banking system remains stable, even as trade tensions are adding pressure on economic growth.
  "Our stable outlook for Chinese banks reflects accommodative policies that should support asset quality over the next 12-18 months, while capital and liquidity also remain adequate," said Minyan Liu, an Associate Managing Director in Moody's Financial Institutions Group.
  Moody's sees some risk for Chinese non-bank financial institutions (NBFIs) as authorities continue to crack down on the shadow banking sector, with lower-tier institutions in particular exposed to liquidity and credit risk.
  In Japan, extremely accommodative monetary policy -- including ultralow interest rates -- have helped sustain economic growth but has also depressed bank profitability and consequently driven them to take more risk domestically and abroad.
  And across ASEAN, banks face a growing risk from leveraged corporates as macroeconomic conditions weaken.
  Moody's stress test -- which assumes a 25% decline in EBITDA -- shows banks in India and Indonesia are most prone to a deterioration in corporate debt repayment capacity, followed by banks in Singapore, Malaysia, and China.
  Moody's banking conference also looks at banks' evolving business models amid technological advancement and rising environmental, social and governance (ESG) considerations.
  "Banks across the region are investing heavily in new technologies and fintech franchises, driven by rising competition from digital banks, changing demographics and evolving customer expectations," said Sophia Lee, a Moody's Vice President and Senior Credit Officer.
  "And while digitization is bringing new opportunities and revenue streams, it also presents new and unfamiliar risks for the banks, including significant cyber risk," added Lee.