Shakier asset quality a key risk for Asia-Pacific banks In 2013: S&P

Standard & Poor's Ratings Services today said in a new report that it expects factors constraining the asset quality of Asia-Pacific banks to persist.

Although the region's economy is likely to show a moderate recovery in 2013 after a sharp drop in growth in 2012, some headwinds in the global economy, such as negative GDP growth in the eurozone (European Economic and Monetary Union), continue to weigh on growth in Asia-Pacific. Meanwhile, some of the more debt-laden corporate and household sectors in the region remain susceptible to external shocks.

"Hikes in property prices, some fueled by easy monetary conditions in the global market, pose additional risk to banking systems in many countries," said Standard & Poor's credit analyst Ritesh Maheshwari. "In contrast to Europe and the US, private-sector credit in Asia-Pacific has grown over the past several years."

Maheshwari also noted that the fast pace of loan growth, particularly in emerging markets, could encourage excess investment and lead to economic imbalances.

"The low interest rate environment and intense competition are squeezing banks' loan margins, which may in turn constrain their revenues. Hence, we believe that the banks will feel compelled to execute cautious credit control as well as proper pricing and growth strategies," said Maheshwari.

Despite ongoing constraints on asset quality and earnings, Standard & Poor's believes adequate capitalizstion, strong liquidity, and government support will underpin its ratings on most Asia-Pacific banks.