‘Profitability, asset quality in Indian, ASEAN banks to worsen’

Signals to watch: Relaxing curbs and resuming economic activity will aid recovery, Moody’s said.

Signals to watch: Relaxing curbs and resuming economic activity will aid recovery, Moody’s said.   | Photo Credit: Getty Images/iStock

The challenging economic and credit conditions stemming from COVID-19 will weigh on ASEAN and Indian banks’ asset quality and profitability, Moody’s Investors Service said in a new report.

“In ASEAN and India, bank downgrades in 2020 have been driven by Indian banks, following the downgrade of the sovereign in June,” said Eugene Tarzimanov, Moody’s vice-president and senior credit officer.

“That said, the majority of the banks in the region are well-positioned at their ratings, despite a higher share of negative outlooks on bank ratings,” he said.

Moody’s said the asset quality and profitability will deteriorate from good levels in 2019 across most banking systems, with Singapore, Malaysia and the Philippines having the best asset quality with non-performing loans below 2%. While government support measures will offset some of the pressure on banks, they will not fully eliminate the negative impact, the report said.

Despite the challenging outlook, the majority of banks are adequately capitalised, and their funding and liquidity will remain sound and stable in 2020-21.

Credit positive

For instance, regulators in India, Thailand and Vietnam have restricted bank dividends, a credit positive for banks, while the largest banks will continue to benefit from deposit inflows as they are seen as safe-heavens in times of stress. “Moody’s expects the GDP of most ASEAN economies and India will contract in 2020 and gradually recover in 2021.

“The relaxation of lockdowns and resumption of economic activity will be the key factors supporting the recovery,” the report said.

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Printable version | Aug 12, 2020 4:37:18 AM |

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