Home / Industry / Banking /  Bank capital to fall in 2 years: Moody’s

Banks in India will be the worst hit among Asia Pacific peers and will witness more erosion in their capital base over the next two years because of the uncertainty over asset quality, Moody’s Investors Service said on Monday.

Emerging Asia could witness a moderate decline in bank capital, but India is expected to post a larger fall without capital infusion, the ratings agency said. The economic slowdown that was a fallout of the coronavirus outbreak is expected to exacerbate the bad loan situation in India, especially in light of the poor performance of certain categories of loans, it said.

Moody’s also expects non-banking financial companies to face a liquidity crunch that would curtail their capacity to lend.

“In the Asia Pacific region, banks’ rising non-performing loans and insurers’ volatile investment portfolios are in focus. Capital will moderately fall in emerging Asia over the next two years and banks in India and Sri Lanka will post larger capital declines without public or private injections," Moody’s said in its 2021 outlook report for financial institutions in emerging markets.

Over the next two years, tangible common equity to risk-weighted assets may remain unchanged or decrease modestly for most banks in emerging Asia, it said. “This will not be significant enough to prompt us to change our views on most banks’ fundamental creditworthiness," it said.

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