Singapore: Moody’s Investors Service said on Thursday it has a negative outlook on South-East Asian and Indian banks as it expects weakness in the global economy to lead to a rise in bad debts.
The ratings agency also said the sovereign ratings for most Asian countries were stable but warned it may remove the positive outlook on Philippines’ B1+ rating because of the worse-than-expected drop in gross domestic product (GDP) growth and tax revenue.
“The slowdowns are clearly making themselves felt on the performances of banks in South-East Asia and India,” Jerry Chien, managing director for Moody’s Financial Institution Group in Asia Pacific, said in a statement.
Moody’s released on Thursday its annual Asian Banking System Outlook, in which it said Thai banks’ intrinsic financial strength remains adversely affected by the economic crisis and domestic political instability.
In Indonesia, banks will face increasing pressure in the next year—particularly from asset quality—although they will fare relatively better than their regional counterparts as the economy slows, rather than contracts, the report said.
In Malaysia and Singapore, loan demand will soften and credit costs are rising as lower earnings weaken the repayment ability of borrowers.
Moody’s added that rising loan delinquencies in India’s banking system are challenging asset quality and profitability, while some public sector banks may need fresh capital, which could come from the Indian government.
On Philippines, Moody’s senior vice-president Thomas Byrne said the country may not be able to maintain its fiscal discipline amid a sharp drop in government revenue.
He said Moody’s expects the country’s GDP growth this year to come in around 1%, or below its earlier forecast, and that the government’s dependence on foreign borrowing made it vulnerable to a weakening in the peso.
“What looked clear earlier this year has become fuzzy,” Byrne told a media briefing.
According to Moody’s, low inflation will allow monetary easing in most Asian countries while external positions will likely remain strong and resilient. The firm, however, also said India and Malaysia’s large government deficits were not sustainable over the medium term, although their strong external positions reduced financing risks.