Asian banks' credit quality remains stable

Moody's Investors Service expects the credit quality and ratings of Asian banks to be "mostly stable" in 2015, as most of the banking systems in the region remain well capitalised and profitable.

"We expect that Asian governments will remain broadly supportive of the large banks, by providing the necessary assistance in case of need. Moreover, most bank regulators in the region are unlikely to embrace wider bail-in and burden sharing tools during 2015, outside of contractual point-of-non viability instruments," the rating agency explained a report.

"This creates a solid footing for the banks to withstand a mild increase in credit costs, and will support a gradual strengthening in the region's growth momentum as we expect a modest improvement in external demand, especially from the US," Moody's said.

The 16 systems covered in this outlook fall into six broad categories in terms of their bank credit outlook. Banks in Australia, Japan, Korea, Malaysia, New Zealand, Thailand, Taiwan and Sri Lanka will be the stable performers in the current environment.

Moody's view is reflected through its bank deposit ratings in Asia, which are on average higher than those in other emerging market regions and in Europe. In addition, 93 per cent of Asian bank ratings have stable or positive outlooks, including reviews for possible upgrade.
 
However Moody's has a deteriorating asset quality assessment on nine of the regional systems covered by its banking system outlooks.

"Despite the low problem loans most systems currently report, increased corporate, and ... household leverage, could ramp up credit costs for the banks," said Stephen Long, a Moody's financial institutions managing director.