Moody’s Maintains Negative Outlook For Banks In Asia Pacific Region
Buildings stand illuminated at dawn in this aerial photograph taken above Johor Bahru, Johor, Malaysia. (Photographer: SeongJoon Cho/Bloomberg)  

Moody’s Maintains Negative Outlook For Banks In Asia Pacific Region

Moody’s Investors Service has forecast a ‘Negative’ outlook for banks in the Asia-Pacific region on the back of ongoing global trade tensions and weak economic conditions.

The rating agency said in a report the outlook is for the next 12 months as the U.S.-China trade dispute would weaken economic and trade activities in the region, weighing down investor confidence. Banks’ margin would also take a hit as central banks are cutting interest rates to push economic growth, Moody’s said.

A “high” private sector leverage also poses a risk to many economies in the region, it said, even when the build-up of debt is “generally moderating”, the report said.

In India, the absolute level of leverage is lower than other regions, Alka Anbarasu, vice president and senior credit officer at financial institutions group of the rating agency, told BloombergQuint in an interview. “However, it still poses a risk.”

Loans in India are highly concentrated within certain corporate groups, Anbarasu said. “Many of these corporate groups are highly leveraged, which has led to asset quality issues for banks in the past and it’s also resulting in new challenges for banks.”

Worsening Bad Loans

A clean-up of the balance sheets of Indian banks would take longer than what Moody’s anticipated a year ago, Anbarasu said.

The country’s debt-laden property sector, she said, would remain a pain-point for the economy as the exposure of Indian banks to the sector poses risks. These developers are facing refinancing challenges and if any projects get stalled, it could affect buyers who may not want to service their loans in case they are unable to get hold of their property, she said.

“The risks are quite imminent for the banks and in that context we do expect more new NPAs (non-performing assets) to come up from this sector,” Anbarasu said.

Watch the full conversation here:

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