Around half of bank Issuer Default Ratings (IDRs) in Asia-Pacific are underpinned by Fitch Ratings’ belief that timely support (from governments or shareholders) would be made available if needed.
In a statement, it said that among APAC emerging markets, support underpins around two-thirds of bank IDRs, while support drives around half of all APAC bank IDRs. Those banks whose IDRs are not underpinned by support are instead driven by their Viability Rating (VR).
It said that there is a demonstrable record of direct and/or indirect support for banks across many Asia-Pacific markets. “Support has been evident from bank parents or governments, with the latter particularly true for the most systemically important banks,” it said.
Fitch said that most markets have not implemented a sophisticated resolution framework, and Fitch does not expect one to be introduced in the medium term by regulators, particularly in emerging markets – except for China.
It said that even if senior debt bail-in were to be introduced in China as a resolution tool, we believe the authorities would favour employing other options to resolve systemically important state-owned banks, including pre-emptive capital or liquidity support.
Fitch said that senior unsecured debt is typically rated in line with a bank’s IDR irrespective of whether the IDR is driven by a bank’s VR or based on support.
“Support also remains a key consideration for Fitch in our ratings on capital securities issued by APAC banks – including subordinated debt and Additional Tier 1 securities. We expect issuance to increase in the next few years, with volumes driven by a need to meet prudential capital requirements and to fund banks’ asset growth,” Fitch said.
