APAC economies’ continued strength will be conducive to the stability of bank credit profiles in the region, Fitch Ratings says in a report that also looks at a variety of other key credit issues, including the regional impact of recent high-profile bank failures outside of APAC.
Our outlooks for banks’ Issue Default Ratings, operating environments and sector prospects in the region are mainly stable or neutral, suggesting that we expect changes to be limited. This partly reflects our expectation that economic growth in the region will remain relatively robust compared with pre-pandemic historic norms. Outliers among our bank rating outlooks are generally due to the relevant sovereign.
Challenges remain for most APAC bank operating environments. We see some banks – generally unrated by Fitch – as more vulnerable to stress, including small regional banks, especially in China, and newer standalone digital banks.
Fitch-rated banks’ Viability Ratings range from the ‘aa’ category to ‘cc’ in APAC, reflecting varying degrees of risks to their intrinsic profiles. However, we believe that support – sovereign or shareholder – is often likely to mitigate the risks substantially, particularly for systemically important banks.
Among major APAC emerging markets (EMs), asset-quality risks appear highest in Thailand, India, and Indonesia. Risks will vary with the unwinding of forbearance measures introduced during the Covid-19 pandemic, the challenges associated with corporate, retail and SME lending, and exposure to potential property-sector weakness.
Fitch says it sees increases in risk appetite as important and believes risks are accumulating in several EM banking sectors, notably India and the Philippines, though risk appetite also continues to rise in developed markets like Korea, Singapore, and Japan as banks seek to support growth and profitability.
