The credit quality of banks in Asian countries like the Philippines is expected to remain stable next year despite increasing credit costs and weakening asset quality, Moody’s Investors Service said in a report.
In its just released “2015 Outlook – Asian Banks: On Solid Footing Against Rising Credit Headwinds” report, Moody’s said most banking systems in the region remain well capitalized and profitable, with some exceptions.
“The stable footing will allow banks to withstand increasing credit costs,” it stated.
Moody’s also anticipates a gradual strengthening in the region’s growth momentum as external demand, particularly from a recovering US economy, improves.
The rating firm expects to see continued robust merger and acquisition activity among Asian banks in 2015. Moody’s also said Asian banks are likely to continue to issue Basel III PONV securities, after issuing more than $84 billion in 2014 as of December.
Some elevated risks
The credit ratings agency identified China and Indonesia as systems where banks remain at risk of adjustment pressures after a period of strong credit growth, but noted that their banking systems still have stable outlooks due to loss absorbing buffers.
Moody’s also expressed the view that the credit quality of Asian banks has peaked, and pointed to asset quality as a mounting credit risk confronting Asian banks despite their current reported low level of problem loans.
The ratings agency also warned that in addition to the effects of tightening monetary policy in the US, a sharper than expected slowdown in China remains a key downside risk for the region.
Nevertheless, global liquidity will remain supportive, and coupled with generally good loss absorption buffers and good funding and liquidity profiles, will mitigate the risk of disruptive shocks, Moody’s added.
“That is reflected in Moody’s average bank deposit ratings in Asia, which are positioned above those in other emerging markets,” it said.
In addition, the ratings firm noted 93 percent of Asian bank ratings have stable or positive outlooks, including reviews for possible upgrade.
Positive outlook for PH banks
Moody’s recently maintained its positive outlook on the country’s banking system over the next 12 to 18 months.
Moody’s pointed out that of the nearly 70 country banking systems that it rates globally, the Philippines was the only one that carried a positive outlook.