Large Asia-Pacific banks have strong capital buffers that would come in handy as global economic growth cools, S&P Global Market Intelligence data shows.
All banks across the region with more than $300 billion in assets, including those in China, India and Singapore, had common equity tier 1 (CET 1) ratios exceeding the minimum regulatory Basel III requirements at the end of the 2022 fiscal year, the data shows.
Several improved their CET 1 ratios over the past three fiscal years, including Industrial and Commercial Bank of China Ltd., the world's biggest bank by assets, and Singapore-based DBS Group Holdings Ltd., the biggest lender in Southeast Asia.
Desynchronized global economy
Among banks with more than $200 billion in assets, the data shows that HDFC Bank Ltd. and ICICI Bank Ltd. had CET 1 capital at 16.30% and 16.88% of their assets, respectively, as of March 31. This is double the 8.20% level the two private-sector lenders in India are required to keep.
Malaysia's Malayan Banking Bhd., along with South Korea's KB Financial Group Inc. and NongHyup Financial Group Inc., were other lenders in the region with CET 1 capital ratios more than 5 percentage points higher than the minimum requirement in the 2023 first quarter. Not all lenders report their minimum required CET 1 ratios on a quarterly basis.
Banks in the Asia-Pacific region face the challenge of stark variations in economic growth and monetary policy. China's central bank has kept a policy-easing bias and Japan is likely to keep its ultraloose monetary policy settings, while India, Australia and most of Southeast Asia are approaching peak interest rates.
India is expected to be one of the world's fastest-growing major economies, while growth in China is yet to pick up after the pandemic. S&P Global Ratings cut its forecast for China's gross domestic product growth in 2023 to 5.2% from 5.5%. The world's second-largest economy grew 4.5% in the first quarter, slower than the government's 5.0% annual target.
"China's large banks should be better placed to handle the stress as bond investment is relatively small and bank loan accounted for nearly 70% of total assets," said Iris Tan, an analyst at investment management and research company Morningstar.
China's financial market has abundant liquidity and risks of bank runs are low as they have a well-diversified deposit base, Tan said.
"A desynchronized global economy in terms of growth, inflation and policy interest rate trends is complicating the region's credit outlook," Ratings said in a June 27 report on the credit conditions for the third quarter. "Stickier inflation is causing central banks to continue monetary tightening, despite the outlook for slowing economic growth."
Challenging outlook
For the export-centric Asia-Pacific region, weakening global demand and souring household sentiment will curtail export activities and consumption, hitting corporate revenues, Ratings said.
Amid the challenging economic outlook, China Merchants Bank Co. Ltd., Oversea-Chinese Banking Corp. Ltd. and DBS had the highest buffers among Asia-Pacific lenders in terms of the difference between their reported CET 1 ratios and the regulatory requirement in the fiscal year ended Dec. 31, 2022.
Some Chinese lenders, such as Bank of Communications Co. Ltd. and China Everbright Bank Co. Ltd., saw their CET 1 ratios decline over the pandemic years, the data showed.
China Zheshang Bank Co. Ltd. and Australia's Westpac Banking Corp. had the smallest gap between their reported CET 1 ratios and the regulatory requirements at the end of the last fiscal year, according to Market Intelligence data.