Global credit rating agency Moody’s Investors Service on Monday said the asset quality of agriculture loans given by banks in Asia Pacific region (excluding Japan but including Indian banks) are not expected to weaken. According to Moody’s, the global agriculture prices have shown better performance relative to energy and metal prices.
Banks in Asia Pacific — except for banks in Vietnam and public sector banks in India — also showed good capital buffers and profitability, providing a good line of defence against rising problem loans, Moody’s said.
In a report entitled ‘Commodity Exposure Will Add to Asset Quality and Profitability Pressure’ Moody’s points out that banks most exposed to agriculture are in New Zealand (14 per cent of gross loans), India (13 per cent), and Thailand (around six per cent). According to the Moody’s report, banks in Asia Pacific (ex-Japan) show moderate loan exposure to borrowers in commodity-related industries, with such loans making up around seven percent of gross loans on average at 2015-end.
“However, the quality of such loans will likely continue to deteriorate, based on Moody’s assessment that energy and commodity prices will remain low over a prolonged period,” Moody’s said.
“In Asia Pacific (ex-Japan), the riskiest exposure for banks in terms of energy and other commodity loans originate from metals and mining, as well as from certain parts of the oil and gas sector, including services, offshore marine and shipping and ship builders,” Eugene Tarzimanov, a Moody’s vice president and senior credit officer said.
“In general, we do not expect negative bank rating actions related to commodity exposures, because banks in Asia Pacific have either good financial buffers, moderate commodity exposures, or ratings that already capture asset quality weakness,” he said. Moody’s expect the commodity prices will stay low for a prolonged period. — IANS
