KUALA LUMPUR, Jan 11 — The outlook for the Asia-Pacific (APAC) banking sector is stable, underpinned by relatively stable economic conditions, high loss buffers and improving...
KUALA LUMPUR, Jan 11 — The outlook for the Asia-Pacific banking sector is stable, underpinned by relatively stable economic conditions, high loss buffers and improving profitability, said Moody’s Investors Service.
Moody’s said the global economic slowdown will present challenges for markets that are more heavily reliant on trade and exports such as Bangladesh and Mongolia, as well as tourism, such as Thailand. “Easing economic growth, higher interest rates and high inflation will lead to a modest increase in problem loans. The increase in problem loans will be manageable as economies had recovered throughout 2021 and 2022.
Moody’s said loan loss reserves are higher than pre-pandemic levels as banks have not released all reserves built up during 2020 and 2021. On average, they are 30 percentage points higher than 2019 levels. It noted that rising interest rates will increase debt burdens as credit growth in many markets has been strong. Debt service ratios are starting to weaken in Australia and South Korea while banks in Australia and New Zealand are exposed to house prices falling in 2023.
“Global trade will be impacted, in turn affecting manufacturing driven economies that are heavily reliant on trade such as South Korea, Malaysia, Thailand, the Philippines and Vietnam. A potential slowdown in global merchandise trade would also have negative implications for trade finance hubs such as Singapore and Hong Kong,” it said.
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