ASEAN Credit Risk Trends: Insights from the Early Warning Signals (EWS) Framework

This blog is written and published by S&P Global Market Intelligence, a division independent from S&P Global Ratings. Lowercase nomenclature is used to differentiate S&P Global Market Intelligence credit scores from the credit ratings issued by S&P Global Ratings.
 

As ASEAN navigates a period of significant growth and transformation, understanding credit risk trends has become crucial for businesses and investors. With strong economic development and increasing digitalization, the credit landscape in the region is evolving. In this blog, we will explore the main credit risk trends in ASEAN using the S&P Global Market Intelligence EWS framework, which provides timely warning signals for early detection of entities with genuine risk of defaulting, expressed in an intuitive, traffic light color scale.^[1]

This blog delves into a dataset of ASEAN public companies^[2], covering the most recent two-year period up to February 28, 2025. During this period, the overall ASEAN credit risk trend has remained relatively stable; however, recent assessments reveal increasing caution, with fewer low-risk green signals and more moderate-risk amber signals. These shifts reflect the risk rising from the uncertainties around tariff policies and the potential US recession, which could dampen demand for exports from ASEAN countries given their strong trade relationships with the US. As shown in Figure 1 below, the proportion of companies flagged as high-risk (red signals) and moderate-risk (amber signals) fluctuated around 20%, while low-risk companies (green signals) consistently accounted for around 60% over the past 2 years.

Figure 1: Overall EWS trends for ASEAN Public Companies^[3]

Moreover, Figure 2 below shows a snapshot of the EWS distribution for selected ASEAN countries^[4], as of 28 February 2025. Indonesia comes as a focal point which entails more than 30% of public companies in high-risk.

Figure 2: EWS Distribution Snapshot by Selected ASEAN Countries

Further insights emerge as we examine various industries in ASEAN, particularly by looking at the proportion of red signals. Figure 3 below highlights industries that are experiencing notable trends of deterioration or improvement.

Figure 3: ASEAN EWS Trends by Selected Industries

As of February 28, 2025, Airlines sector saw significant credit improvement with the percentage of red signals dropping significantly from nearly 70% to below 50% over the past 2 years. This positive trend is primarily driven by a rebound in passenger demand and increased travel activity following the easing of pandemic-related restrictions. Nevertheless, the percentage of red signals remains relatively high, primarily due to intense competitions from low-cost carriers and fluctuations in fuel prices, which continue to weigh on operating costs and profitability.

Over the same period, Utilities, Information Technology, and Healthcare sectors have experienced noticeable credit deteriorations, with the percentage of red signals increasing by 5%-10%. The elevated credit risk in Information Technology can largely be attributed to higher debt-servicing costs amid persistently high interest rates, as well as market volatility triggered by regulatory changes and geopolitical tensions. For the Utilities sector, the transition to renewable energy sources keeps necessitating significant capital expenditure which eats into corporate cash flows and financial flexibility. Similarly, rising operational costs are placing additional financial burdens on the Healthcare sector.

Understanding the evolving credit risk landscape across various industries in ASEAN is crucial for stakeholders aiming to make informed decisions. While some sectors face increasing credit risk due to external pressures and market dynamics, others are showing signs of resilience and recovery. By closely monitoring these trends and leveraging insights from the EWS Framework, businesses and investors can better navigate the complexities of the market and position themselves for success in this vibrant region.

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^{[1] Red/Amber/Green color scales are the representations for High-risk/Moderate-risk/Low-risk, respectively. Please refer to the Early Warning Signals Framework 1.0 White Paper.}

^{[2] Singapore is excluded as it is a developed economy. Only public companies with full financials are included in this blog.}

^{[3] Red (high risk) – Genuine risky and high chance of going into default; Amber (moderate risk) – Moderately risky and intermediate chance of going into default; Green (low risk) – Relatively safe and low chance of going into default.}

^{[4] ASEAN countries with limited observations are not shown below.}