KUALA LUMPUR: Moody's Investors Service expects Asian banks to face more challenging asset quality environment next year, but they are well position to weather it as their credit profile and rating positioning continue to compare well with those of other regions.
In its latest report titled "2014 Outlook – Asian Banks: Well Positioned to Weather Asset Quality Challenges", it said most systems in Asia were well capitalised and enjoy a strong profitability buffer, while the assets remained largely funded by domestic deposits, a situation that added resilience to their liquidity profile.
Moody's said it expected these strengths to persist in 2014, allowing most systems to remain resilient in its base case scenario, which was characterised by the gradual recovery in global growth.
Nevertheless, the rating firm said rapid credit growth and asset price inflation were two key risks for many Asian banks, as credit quality in the region generally peaked and that some systems would face increasing asset quality challenges.
"The potential end to the Federal Reserve's quantitative easing programme can be a trigger for a turning point in the credit cycle.
"Banks in China, Indonesia, Malaysia and Thailand are at risk of rising adjustment pressures after a period of strong credit growth, but still have stable outlooks due to the banks' loss absorbing buffers," it added.
Moody's further continued to view Asia as lagging the global agenda regarding the adoption of resolution regimes as the region's authorities remained in no hurry to embrace the concept of statutory bail-ins.
Additionally, it expects mergers and acquisitions to continue to be a driver of credit quality for acquiring and acquired banks in 2014. -
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