Asia's Big Developers `More Vulnerable' to Shocks, BIS Warns

(Bloomberg) -- Asia’s big developers are “more vulnerable” to shocks after their profitability waned from the boom years at the start of the decade, the Bank for International Settlements warned.

The “sector’s deteriorating fundamentals give reason for concern,” said the Basel, Switzerland-based institution, which watches over global financial stability. Many firms’ returns on assets are below their costs of debt, the BIS said in a quarterly review, citing a study of developers in China, Hong Kong, Indonesia, Malaysia, Singapore and Thailand.

Higher interest rates, sinking property prices or falling currencies are shocks that could worsen developers’ financial health, with the potential for significant economic repercussions, according to the organization known as the central banks’ central bank. Even without external jolts, falling returns on assets and declining interest coverage ratios “could pose problems” for the firms, it said.

While easy money drove property booms worldwide after the global financial crisis, the BIS argues a tightening in the years ahead could force developers to sell off inventory -- driving down prices -- and lay off workers.

Also in the report:

• Developers’ leverage “looks modest” and interest-coverage ratios are above “critical levels”
• Thailand’s developers were the exception to the theme of sinking profitability
• Much of the data only ran through the end of 2016

To contact the reporter on this story: Paul Panckhurst in Hong Kong at ppanckhurst@bloomberg.net.

To contact the editor responsible for this story: Sree Vidya Bhaktavatsalam at sbhaktavatsa@bloomberg.net.

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