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Fitch: Asset-Quality Risks Weigh on APAC Bank Outlooks
December 8, 2016 / 6:13 AM / a year ago

Fitch: Asset-Quality Risks Weigh on APAC Bank Outlooks

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: 2017 Outlook: Asia-Pacific Banks here SINGAPORE/HONG KONG, December 08 (Fitch) Most of Asia-Pacific's (APAC) banking sectors are facing a cyclical deterioration in asset quality in 2017, as a challenging economic environment continues to put pressure on borrowers. Fitch Ratings' 2017 outlook on more than three-quarters of the banking sectors in the region is negative. Earnings and capital buffers are generally strong enough to withstand these trends, but we expect Viability Ratings to remain under pressure in China and India. There has been a rapid build-up of private-sector debt - corporate and household - in a number of APAC economies since 2009, and the vulnerabilities that this has created will continue be tested in 2017. Fitch expects economic growth in emerging-market (EM) Asia to moderate further to 6.4% in 2017, which is still faster than in other regions but down from an average of 7.8% in 2010-2014. Meanwhile, low commodity prices are still creating financial problems in the resources sector. Other challenges faced by banks include very low, or negative, interest rates and the rapid development of disruptive financial technology ('fintech'). Downside risks have also risen over the last year. China's economy has stabilised, but rapid credit growth is posing a rising threat to basic economic and financial stability. The US election outcome has already led to expectations of higher US interest rates, and a stronger US dollar. Dollar strength would hurt exporters in APAC and make it more difficult for borrowers to service dollar-denominated debts. Meanwhile, president-elect Donald Trump's proposed protectionist policies could disrupt trade, which would be particularly damaging to emerging-Asia's more open economies. This difficult and uncertain operating environment is likely to translate into further asset-quality deterioration during 2017. We also expect low risk appetite to hold back credit growth, and margin pressures will undermine profit growth. As a result, banking system outlooks have become progressively weaker - we had a negative outlook on less than half of these a year ago. Fitch expects bank capital levels to generally improve despite negative sector trends. This is partly in response to global regulatory pressures, but also because slow credit growth will aid internal capital generation. Capitalisation and absorption buffers across the region are generally considered comfortable. The main exceptions are the two largest emerging markets - China and India. Capital levels in Mongolia, Vietnam and Sri Lanka also reflect their relatively low ratings. The outlook on bank ratings is stable in the majority of APAC banking systems. The exceptions are Japan and Sri Lanka - where the negative outlook mirrors our outlook on the sovereign. Sovereign support is still important in APAC, but credible resolution regimes may see support eroded for banks in the region's more advanced financial systems. For more details, see our report "2017 Outlook: Asia Pacific Banks", available at or by clicking the link above. Contact: Mark Young Managing Director, Financial Institutions +65 6796 7229 Fitch Ratings Singapore Pte Ltd. One Raffles Quay South Tower #22-11 Singapore 048583 Jonathan Cornish, Managing Director, Financial Institutions +852 2263 9901 Ambreesh Srivastava, Senior Director, Financial Institutions +65 6796 7218 Tim Roche Senior Director, Financial Institutions +612 8256 0310 Dan Martin Senior Analyst, Fitch Wire +65 6796 7232 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at All opinions expressed are those of Fitch Ratings ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. 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