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Research Report

15/10/2019 15:39

APAC bank profitability under pressure - Moody's

[ET Net News Agency, 15 October 2019] Moody's Investors Service said that the subdued
global economic outlook is posing challenges for Asia Pacific banks, with the ongoing
trade tensions, slowing economic growth and an uncertain geopolitical environment set to
create more volatile operating conditions.
The conclusions are part of this year's Moody's annual banking conference, which took
place in Singapore on 3 October, and is still scheduled for Hong Kong (16 October),
Shanghai (23 October) and Tokyo (29 October).
"The operating environment is deteriorating across the major APAC banking systems, with
profitability under pressure in most systems," said Stephen Long, Managing Director for
Moody's Financial Institutions Group.
"Nevertheless, most banks in the region are well-positioned to withstand these
challenges, supported by strong liquidity and capitalization -- a testament to measures
taken in various systems over the years to build adequate buffers against shocks," adds
By system, Moody's outlook for China's banking system remains stable, even as trade
tensions are adding pressure on economic growth.
"Our stable outlook for Chinese banks reflects accommodative policies that should
support asset quality over the next 12-18 months, while capital and liquidity also remain
adequate," said Minyan Liu, an Associate Managing Director in Moody's Financial
Institutions Group.
Moody's sees some risk for Chinese non-bank financial institutions (NBFIs) as
authorities continue to crack down on the shadow banking sector, with lower-tier
institutions in particular exposed to liquidity and credit risk.
In Japan, extremely accommodative monetary policy -- including ultralow interest rates
-- have helped sustain economic growth but has also depressed bank profitability and
consequently driven them to take more risk domestically and abroad.
And across ASEAN, banks face a growing risk from leveraged corporates as macroeconomic
conditions weaken.
Moody's stress test -- which assumes a 25% decline in EBITDA -- shows banks in India and
Indonesia are most prone to a deterioration in corporate debt repayment capacity, followed
by banks in Singapore, Malaysia, and China.
Moody's banking conference also looks at banks' evolving business models amid
technological advancement and rising environmental, social and governance (ESG)
"Banks across the region are investing heavily in new technologies and fintech
franchises, driven by rising competition from digital banks, changing demographics and
evolving customer expectations," said Sophia Lee, a Moody's Vice President and Senior
Credit Officer.
"And while digitization is bringing new opportunities and revenue streams, it also
presents new and unfamiliar risks for the banks, including significant cyber risk," added
Lee. (KL)

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