Bail-in rules ignored by APAC banks

Ratings agency Standard & Poor's has explained how the approach taken in placing some major European banks on negative credit watch might apply to major Asia-Pacific banks

"We remain of the view that ratings on systemically important banks in APAC would likely be negatively affected if governments were eventually to adopt less-supportive approaches," said Gavin Gunning, a senior director in S&P's financial institutions group.

Compared with some other regions, though, governments in APAC have tended to remain "highly supportive" of their systemically important banks, rather than merely "supportive" or "uncertain". For example, 14 of the 19 APAC banking systems for which S&P has bank ratings are viewed by its analysts as "highly supportive".

"By contrast, we currently assess none of the 19 Western European systems ... as 'highly supportive', while in the U.S. and Canada we currently believe the respective governments to be 'supportive' but not 'highly supportive' toward their banking sectors," Gunning told an audience of S&P clients, analysts and media.

By way of comparison, S&P analysts explained that Cambodia's banking system has been classified as offering "uncertain support" because the government has historically allowed weaker banks to fail. Support has been limited to facilitating a restructure or allowing failed local banks to be taken over by foreign players, according to S&P's analysts.

Further, S&P said it will be monitoring other trends, such as the build-up of "additional loss-absorbing capital", as this "may represent "a credible alternative" to being given tacit government support.

"Obviously, capital is a very important factor at stand-alone credit profile level and S&P has directed a lot of focus on that area, along with assessing potential government supportiveness and intervention," Gunning said

In contrast, other jurisdictions are keen to adopt bail-in rules, no matter what negative connotations it might project.

"The whole concept of a senior credit [bondholders] not being paid in full, on time is so integral to what standard and Poor's credit rating represents. The possibility that support may not be forthcoming from a government sits uncomfortably with our current rating criteria," Gunning said.

Another area to ponder is the situation in New Zealand - a developed market assessed by S&P as merely "supportive", a lesser level than the "highly supportive" rating given to comparable banking systems in the APAC region, such as Australia.

"As a practical and relevant point for ratings," said Gunning, "what we look for in assessing the credit worthiness of New Zealand banks is continuing evidence that they remain core to the operations of their Big Four Australian parents."