Earnings and profitability for most APAC banking systems are set to improve in 2022 – albeit to varying degrees – as economic recoveries take hold. Fitch Ratings believes the prospects for new business generation will be like or better than end-2019 levels for most regional banking systems by end-2022.
However, prospects remain subject to developments around Covid-19 and response measures adopted by the authorities.
Fitch’s 2022 sector outlooks are mostly neutral, which suggests a broadly steady financial performance by the banks.
Fitch said that in some instances it reflects better-than-expected rebounds in 2021 and moderating improvements in 2022. On the other hand, prospects are more clearly improving in some markets – particularly in parts of emerging Asia where the economy should expand further and bank capital buffers are highest (e.g. Indonesia, Thailand).
That said, asset quality could still weaken as and when relief measures unwind, but we do not see that as affecting financial performance significantly.
Developed-market banking systems in APAC will look to consolidate the recovery in key financial metrics, continuing the search for new revenue sources while navigating a less accommodative fiscal and monetary landscape.
Fitch expects some gradual unwinding of stimulus measures, particularly in markets where the recovery has been stronger than peers or where the authorities seek to address economic imbalances, including rising property prices and household leverage. Their outlook balances our expectation of the continued recovery of business conditions against modest headwinds, including slower nominal growth and a slowdown in China.
