APAC banking sectors vulnerable to bail-in downgrades

Yesterday, in a webcast and subsequent Q&A session, regional and country specialists on the financial sector from Standard & Poor's Ratings Service outlined their Asia-Pacific Banking Outlook for 2015.

 One point of commonality to emerge was that, because the region is so dependent on trade, the banking systems in Asia-Pacific would find it difficult not to embrace trends emerging from the US and Europe concerning senior creditor bail-in.

 S&P then noted that the Asia Pacific region has a high proportion of banking systems in jurisdictions with governments that are considered "highly supportive" (the numbers: 14 of 19 rated banking systems) toward their respective banking sectors.

 And this point led to the further observation that the potential removal of government support - while currently perceived by S&P as a "low-probability scenario" for many Asia-Pacific banking sectors - was likely to have a negative rating impact, should it occur.

 Sharad Jain, director for Australia and New Zealand banks, explained that S&P did not expect to make any ratings downgrades for the Australian banking system in 2015 as the economy remained supportive with both GDP and unemployment figures heading back towards their long-term trend rate.

 "Banks are expected to continue with their conservative risk appetite ensuring that trade losses will remain low (for 2015).

 "In addition, S&P do not expect any change in attitude by the government to the current level of support it is giving to the banking industry," Jain said.

 Against that, S&P acknowledged that there were increasing pressures to create a global bank resolution framework and that Australia, along with all other G20 countries, would be expected to apply the rules in a way that was consistent across borders.