Despite risks Asian bank ratings outlook stable
31 January 2012
Rating agency Fitch Ratings today said the ratings outlook for banks in the Asia-Pacific (APAC) region is 'stable' and their existing rating levels indicates their ability to weather the weaker global economy and / or the expected ability and willingness of the respective sovereign to provide support.
It said in its 2012 Outlook: Asia-Pacific Banks, key elements to this rating outlook include the ability to absorb higher credit losses as a result of the impact of the global economic environment, as well as the strength of funding structures.
Potential downside risks, however, exist. Fitch said it remained cautious on Chinese banks whose funding and liquidity pressures are increasing as "these banks balance rising forbearance / asset quality burdens" with the pressure to lend in support of economic growth.
This adds downward pressure on viability ratings (VRs) within China, which could consequently affect the VRs of banks based in regional centres where exposure to China has grown, like Hong Kong and Singapore. Downside risk is also heightened by potential economic contagion from Europe and / or a structural economic deterioration in China.
A trend that will be evident in 2012 will be rising NPL ratios across the region, but, with most banks at near cyclical low points, Fitch notes this trend is expected. Countries that may surprise on the upside should conditions deteriorate further are China, India and Vietnam.
Pre-provision profits are expected to remain adequately strong, and should absorb risks from some downward pressure on earnings from higher impairment charges and slower loan growth. Thin profitability, however, remains a feature of the Japanese and Taiwanese banking sectors.