Moody’s Investors Service said sound economic fundamentals make Asian economies resilient to the impact of global headwinds this year.
In a statement released Tuesday, the credit ratings agency said global challenges for 2015 include the US Federal Reserve taking the first steps to normalize monetary policy, sustained low commodities prices and China’s rebalancing.
Asia it said has policy space to support growth through accommodative domestic monetary and fiscal policies, it said.
“As global growth remains subdued with brighter prospects in the US offset by lacklustre growth in the Euro Area and Japan, and China’s ongoing slowdown, Asia’s resilience will become increasingly evident,” Michael Taylor, a Moody’s chief credit officer, said.
While Moody’s expects capital inflows to Asia Pacific to moderate in 2015, offshore borrowing costs will remain below historical norms, reflecting Asia’s sound fundamentals.
It said the region’s status as a net oil importer and the opportunity for governments to pare back subsidies mean that falling crude prices will be credit positive for much of the region.
Stable banking systems
In terms of banking system, Moody’s expects that Asian banks’ credit quality will be mostly stable in 2015, even as asset quality weakens and credit costs increase.
It said most banking systems in the region remain well capitalized and profitable, but some will face adjustment challenges as industrial economies pursue divergent monetary policies in the year ahead.
The credit rater said changing monetary policy in key industrial nations such as the US, UK, and mainland Europe could affect Asian banks with high leverage and elevated dependence on capital inflows.
However, global liquidity remains generally supportive and, coupled with Asian banks’ generally strong loss absorption buffers, and good funding and liquidity profiles, mitigates the risk of disruptive shocks, said Stephen Long, a Moody’s managing director for Financial Institutions Group.
Moody’s traced its view on its bank deposit ratings in Asia, which are on average higher than those in other emerging market regions and in Europe.
It said 93 percent of Asian bank ratings have stable or positive outlooks, including reviews for possible upgrade.
In addition, the credit ratings agency warned that sharper than expected slowdown in China remains one of the key downside risks for Asian banks, although their current profitability and strong capitalization buffer them from these potentially rising credit costs.
It pointed out that Asian governments will remain broadly supportive of the large banks, and are showing caution in following the lead set in North America and Western Europe of passing more risk of resolving troubled banks to creditors via bail-in regimes.