Top bankers in Asia-Pacific are more positive about the economic prospects in the region for 2024, despite lingering uncertainties about the global economy.
Bank executives said the region remains resilient amid heightened global political risk. Many lenders in countries such as Singapore and Japan posted higher earnings, as higher interest rates boosted their margins. But higher rates can be a double-edged sword as they have hurt many borrowers and reduced their ability to repay their loans.
"In terms of the outlook, geopolitics is still uncertain. But macroeconomic conditions seem quite resilient. Growth rates in Asia are quite stable," DBS Group Holdings Ltd. CEO Piyush Gupta said at the Singapore lender's May 2 post-earnings call.
"Consumer demand is generally holding up. Even though the strong dollar means depreciation for other currencies, it does not look like it should cause too much worry," Gupta added. The biggest bank by assets in Southeast Asia reported a 15% year-over-year rise in income in the first quarter, citing higher fee income and loan growth.
The real GDP of Asia-Pacific is expected to grow 4.5% in 2024 and 4.3% in 2025, following a 5% increase in 2023, according to the International Monetary Fund. The region is expected to drive 60% of global growth, IMF executives said in an April 18 press briefing. As the biggest economy in the region, China's economic growth is important for the region. The country reported 5.3% GDP growth in the first quarter ended March, tracking higher than the official target of about 5% in 2024. Still, the property sector and retail sales in China are facing a slowdown.
"A more protracted slowdown in China would be bad news for the region for several reasons," Krishna Srinivasan, director of Asia and the Pacific Department at the IMF said at the press briefing. Srinivasan noted that falling Chinese export prices puts pressure on the profit margin of China's competitors.
"We are cautiously optimistic about this year's outlook. For Southeast Asia, despite the impact from high rates and a strong US dollar, we continue to see ongoing shift in global supply chains and sustained tourism activities. China is taking steps to reduce its reliance on property sector and diversifying into new economic growth drivers," United Overseas Bank Ltd. CEO Ee Cheong Wee said during a May 8 briefing. This should generate more trade and foreign direct investment opportunities between China and Southeast Asia, Wee said.
"Looking ahead, 2024 so far has been good. While the operating environment ahead may be uncertain, we will stay vigilant and nimble," Wee said.
Inflation worries Australia
Australia's top bank executives expressed caution amid the challenging high interest rate and inflation environment. Australia's GDP grew 0.2% in the fourth quarter of 2023, with nominal GDP up 1.4%, according to Australian Bureau of Statistics data. The Reserve Bank of Australia, which began raising rates in 2022 to keep inflation between 2% and 3%, noted a consumer price index increase of 3.6% through March in its May 7 monetary policy statement.
"Activity has slowed as the ongoing impact of higher rates and inflation weigh on households. Real GDP growth has slowed from 2.4% over 2022, and we expect this to remain at below trend rates of less than 2% over the course of 2024," Andrew Irvine, CEO of National Australia Bank Ltd., said during the bank's May 2 results briefing. "The Australian economy will remain resilient and is on track for a soft landing."
ANZ Group Holdings Ltd. CEO Shayne Elliott noted the growing financial distress among customers due to rising living costs. "Higher interest rates, taxes, rent and household expenses are hurting many. The number of customers in hardship rose this half and while still lower than it has been in the past, it's extremely distressing for each of them. And we expect that number to rise further as cost of living bites harder and unemployment likely increases," Elliott said during the bank's May 7 briefing. ANZ's cash profit fell 7.3% to A$3.55 billion in the six months ended March.
Peter King, CEO of Westpac Banking Corp., said May 6 that despite a resilient economy, "the lagged impact of interest rate increases and inflation will drive a rise in unemployment," which rose to 4.1% in April. Westpac's hardship assistance had increased, reflecting the uneven impact of the economic pressures, King noted.
End of negative rates
The Bank of Japan ended its negative interest rate policy in March, marking its first rate increase in 17 years by setting the short-term policy rate between 0% and 0.1%. The bank will also stop targeting yields for 10-year government bonds, allowing long-term rates to rise.
Toru Nakashima, CEO of Sumitomo Mitsui Financial Group Inc., said at a May 15 press conference that the Japanese central bank "took appropriate action but that was just the first step" toward normalizing monetary policy, which "will be a plus for our earnings," but might negatively impact deposits.
Japan's three biggest banks are targeting higher earnings in 2024 as higher interest rates boost their margins.
Hironori Kamezawa, CEO of Mitsubishi UFJ Financial Group Inc., noted the shift to positive rates would enhance their interest margins. "If the [short-term] rates are raised by 15 basis points, that would contribute up to 150 billion [in net interest income]," Kamezawa said at a separate news conference the same day.
Masahiro Kihara, CEO of Mizuho Financial Group Inc., said at another same-day conference that further rate hikes from the Bank of Japan would benefit lending rates. "If the Fed doesn't cut rates, that will make me worry about the [US] economy. Unless the US rates are cut, rates in Asia won't move lower," Kihara added.
