KUALA LUMPUR, March 25 — Moody’s Investors Service has changed its outlook on seven Asia-Pacific (Apac) banking systems to stable from negative in light of improving macroeconomic conditions and receding asset risks.
The seven banking systems with a stable outlook are that of Australia, China, Hong Kong, Indonesia Korea, Malaysia, and Singapore.
The bond credit rating said at the same time, it has also changed the outlook on the Vietnamese banking system to positive, and maintained its negative outlook on two systems, namely that of Japan and India.
“The stable outlook on the seven banking systems reflects Moody’s expectation that the economic upturn and relative containment of the pandemic in these economies will improve banks’ operating environments,” it said in a statement today.
Moody’s views that Apac banks’ nonperforming loans will increase moderately in 2021 as remaining moratoriums and support measures gradually unwind. However, banks’ increased credit provisions provide an adequate buffer.
“The banks’ profitability is also expected to improve this year, because credit costs, or loan loss provisions as a share of gross loans, will decrease,” it said.
APAC banks will also maintain strong and stable funding and liquidity in 2021, it said following last year’s improvements in funding conditions that benefited from easier monetary policy.
“Their core capital will remain stable, although a mild decrease will occur in some systems as banks will increase their dividend payouts.
“Furthermore, government support for banks will remain strong in most Apac banking systems, supporting the credit ratings of the banks,” it viewed.
However, it noted that key downside risks to Apac banking systems would include the potential for uneven economic recovery in case of new lockdowns, volatility in financial markets that could lead to weaker domestic currencies in some emerging markets, and delayed recognition of problem loans as policy support measures unwind.
As for the positive outlook on Vietnam’s banking system, it said it was driven by improving operating conditions for its banks and the positive outlook on the nation’s sovereign rating.
Similarly, the negative outlook on India’s banking system was driven by a negative outlook on India’s sovereign rating as this could imply weaker capacity for the government to support banks in times of stress, it said.
Moody’s said the negative outlook on Japan’s banking system reflects the structural challenges to banks’ profitability in the context of persisting ultra-low interest rates.
“This was a trend in evidence before the coronavirus hit the economy and will persist during the outlook period,” it added. — Bernama
