Key Takeaways
- For Asia-Pacific, we now forecast credit losses of about US$425 billion this year, and about US$440 billion next year.
- A downside scenario outside our base case, including higher-for-longer inflation and much weaker economic growth, is a key risk and will ultimately drive negative ratings momentum.
- Mortgage strikes pose a limited direct threat to Chinese banks. Even in our downside scenario, potential at-risk mortgages would comprise just 1.3% of banks' total loan book.
Risks Affecting Global and Asia-Pacific Banks Are Increasing
Global banks face a tougher test on several fronts. Economic growth prospects are weaker. Inflation is rising. Corporate and household leverage is high, and stress in the property sector is intensifying. We expect this combination to challenge the generally stable rating trends across the global and Asia-Pacific banking sector. A key risk is that our current economic base case does not hold. The emergence of a material economic downside scenario outside our current base case, including higher-for-longer inflation and much weaker economic growth, will hurt corporates and households--and therefore banks.
Bank balance sheets are, however, in good enough shape to buffer these headwinds. Bank capital has strengthened materially since the global financial crisis, and asset quality is sound (see "Global Banks Outlook--Midyear 2022: Tougher Tests Ahead; Global Banking Outlook--Midyear 2022: Here Comes The Rain Again," July 21, 2022). These factors will afford banks some flexibility at current rating levels.
Higher Credit Losses Ahead
For banks across the globe, we now forecast credit losses of about US$640 billion this year and close to US$700 billion next year. In aggregate, these forecasts are about 13% higher than our earlier (February 2022) forecasts. The gloomier picture reflects the more difficult economic environment we see in our base case across much of the world since Russia's invasion of Ukraine and the effect this has had on energy prices and supply chains. At the same time, household and business confidence are weaker (see "Global Bank Credit Loss Forecasts: Higher Losses Ahead," July 20, 2022).
For Asia-Pacific, we now forecast credit losses of about US$425 billion this year, and about US$440 billion next year. These forecasts are about 23% higher than our earlier (February 2022) forecasts. Dominating our outlook for Asia-Pacific and global credit are the credit losses in the Chinese banking sector. This reflects the sheer size of the Chinese banking sector, and the economic and property sector downturn hitting the country.
In China, we estimate that about 40% of property developers are in financial difficulty. The bulk of this stress will likely show up in the banking sector as special-mention loans or other problem loans that don't require high levels of provision. We expect an "L-shaped" recovery for developers, and for credit quality pressure to remain high, despite still reasonable collateral valuations. In addition, we anticipate that by the end of 2022 the nonperforming loan (NPL) ratio of the property developer sector will more than double to 5.5%.
For Asia-Pacific ex-China, we forecast banking sector credit losses of about US$83 billion for full-year 2022. This is about 5% higher than 2021. For the two years to end-2023, we forecast credit losses of about US$165 billion. We expect that at current rating levels most banks should manage expected slower economic growth and higher interest rates in most Asia-Pacific jurisdictions during 2022.
Some Sovereigns Are Stabilizing Or Improving
Positive sovereign rating actions over the past quarter have led to outlook revision for Indonesian and Malaysian banks to stable from negative. They have also caused an upgrade for various Taiwanese financial institutions. This signals less uncertainty, but we remain cautious because downside risks from economic conditions could intensify. In June 2022, we revised our real GDP growth forecasts downward by 0.4% to 4.2% for Asia-Pacific.
Banking Country Industry Risk Assessments Are Mixed
Slowing growth in China remains a key risk. Tough COVID-19 restrictions amid a resurgence of infections, along with other domestic and external factors, have dampened the improving trend in loan quality of the country's banks. Supportive financial policies could alleviate some of the burden, but the spread of the virus is difficult to predict, and restrictions could further slow the economy. In May 2022, we therefore revised our economic risk trend on Chinese banks to stable from positive. The outlooks or triggers on some banks and their subsidiaries were revised following this action.
We revised our economic risk trend for Malaysia to stable from negative. This reflects an improvement in operating conditions. We expect the financial profile of Malaysian banks to withstand higher inflation and rising interest rates. Asset quality risks have subsided. As of April 30, 2022, loans under repayment assistance for rated banks plunged to 5%-6% of domestic loans from 15%-25% as of Feb. 28, 2022. The NPL ratio also remains contained at 1.6% as of April 2022, marginally higher than 1.4% as of Dec. 31, 2021.
Improving banking country risk trends across the region are constrained. We have positively adjusted our industry risk view in Korea although this caused no change to our current Banking Industry Country Risk Assessment (BICRA). For Australia, industry risk trends are positive. Of the 83 jurisdictions that we cover, Australia is one of only four where we see positive industry risk trends.
At the other end of the scale, we have downgraded our industry risk trends in Sri Lanka. More recently, we withdrew our BICRA on Sri Lanka.
Mortgage Strikes Pose A Limited Direct Threat To Chinese Banks
Strikes by Chinese homebuyers on mortgage payments for delayed residential projects could contribute almost Chinese renminbi 1 trillion to banks' at-risk loans. Even in our downside scenario, potential at-risk mortgages would comprise just 1.3% of banks' total loan book. However, we believe the strikes point to weakening confidence among homebuyers, which could dent the sales of stronger developers. This could prolong the recovery of the property sector. A sharp decline in home prices could threaten financial stability. The government views this as important enough to warrant rapid relief funds to stem eroding confidence.
We believe that by stopping payments, China's mortgagors are effectively pressuring banks and the government to force developers to deliver the residences people paid for. Chinese homebuyers have withheld payments on mortgages spanning hundreds of residential projects because they fear some distressed developers lack the means to complete the homes. Our bottom-up analysis estimates that boycotts of mortgage payments could affect about RMB980 billion of such loans, in our base-case. This accounts for 2.5% of China's mortgage loans, or 0.5% of total loans. In our downside scenario, potential at-risk mortgage loans could widen to 6.4% of China's mortgage loan book, or RMB2.4 trillion. In our view, the large, state-owned lenders that are active in mortgages can handle such an increase in bad loans (see "China's Mortgage Strike Puts Almost RMB1 Trillion In Bank Loans At Risk," July 26, 2022).
China's Village-Bank Fraud Spooks Depositors
Small banks in China are more prone to weak governance than larger peers. Protests outside "village" banks and regulatory offices in Henan province dramatically underscore this known problem. Panic has gripped bank customers after some faced barriers to withdrawing funds at four village banks in Henan province and another two in Anhui province. If there is contagion, deposits leaving small banks would likely land at larger peers. Flight-to-quality scenarios hinge on public perception of the deposit-protection system and whether an institution has government backing.
We believe prudential regulators are assessing potential financial gaps and trying to strike a balance between protecting depositor confidence without appearing to guarantee investment-like products and other concessions that give rise to moral hazard. A regulatory takeover is possible given the small size of these private banks, the foul play and reputational damage, and the effect on ordinary deposits, (see "China's Village-Bank Fraud Could Hit Deposits At Smaller Institutions," July 14, 2022).
Chinese Regulators Preparing For The Risk Of U.S. Sanctions Against Chinese Banks
The unprecedented sanctions on Russia are prompting investors to question whether the U.S. could inflict similar measures on Chinese banks. Chinese regulators are introducing measures to manage sanctions. This suggests to some the risk is real, if remote. In late May, the China Banking and Insurance Regulatory Commission (CBIRC) advised institutions not to implement foreign legal restrictions. It suggested entities should adhere to China's Anti-Foreign Sanctions Law. Also in May, the Hong Kong Monetary Authority said it was preparing to mitigate the risk of the removal of Hong Kong banks from the international financial messaging system SWIFT, according to press reports (see "Credit FAQ: U.S. Sanctions On China Banks--Investors Are Not Prepared For This High-Impact Risk," June 20, 2022).
China Great Wall Asset Management Subsidiary Ratings Placed On CreditWatch Negative Due To Delayed Results
A prolonged delay in the release of its results for 2021 adds uncertainty about the company's stand-alone credit profile (SACP). We therefore placed our ratings on GW, its subsidiary, China Great Wall AMC (International) Holdings Co. Ltd. (GW International), and the notes guaranteed by GW International on CreditWatch with negative implications.
We expect to resolve the CreditWatch in the next three months, after we have more clarity on the group's audited financial performance and the implications on its capitalization, risk management, and governance (see "Research Update: China Great Wall Asset Management, Subsidiary Ratings Placed On CreditWatch Negative Following Further Delayed Results," July 12, 2022 .
Japanese Banks' Profitability Pathway To Remain Arduous
We believe Japan's three megabank groups can sustain their improving earnings capacity. This is indicated by their strong financial results in fiscal 2021 (ended March 31, 2022) However, we see major threats from the weakening credit quality of domestic large-lot borrowers and rising economic risk in emerging Asia (see "Japan Megabanks: Challenges Ahead For Sustained Earnings Capacity," June 14, 2022)
As for the Japan's regional banks, how they adapt to a changing environment could further widen differences in their profitability. They got a temporary boost from the support measures of the government and central bank. Financial results of 11 Japanese regional banks we rate improved in fiscal 2021 (ended March 31, 2022). We also note deterioration in unrealized positions on available-for-sale securities due to higher overseas interest rates. With this in mind, we believe that maintaining improved profitability remains difficult.
We may therefore consider downgrading regional banks that fail to promptly adapt to changes in business conditions. This may lead us to view their revenue bases as weaker than the average of Japan's banking industry. (see "Japanese Regional Banks: Widening Profitability Gaps Despite Favorable Fiscal 2021," June 20, 2022). On June 28, 2022, we lowered our long-term issuer credit ratings on Japan-based regional banks Higo Bank Ltd. and Kagoshima Bank Ltd. by one notch to 'BBB+' from 'A-'. The outlooks on the long-term issuer credit ratings are stable.
Stablecoins' Role In Decentralized Finance Set For Further Disruption
Spurred by recent market turbulence, stablecoins are attracting increasing regulatory scrutiny. The currency policy stance toward stablecoins varies across jurisdictions. In China, for instance, stablecoins and other cryptocurrencies are banned. Consequently, the focus is on the launch of a central bank-backed e-CNY--or digital currency. In the U.S., talks are progressing on how to regulate stablecoins; so far, more than 95% of outstanding coins are linked to the U.S. dollar. The U.K. government has also made it a priority to legislate in this area to foster the country's future role as a crypto-hub. Japan is allowing banks and other registered financial services entities to issue stablecoins from next year. See "Stablecoins: Common Promises, Diverging Outcomes," June 16, 2022, for an examination of the implications around stablecoins and potential competitors from the traditional finance world, how they work, the roles they play, and the risks they pose.
Table 1
| Real GDP Forecast | Change from May interim update | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (% year over year) | 2021 | 2022 | 2023 | 2024 | 2025 | 2022 | 2023 | 2024 | ||||||||||
| Australia | 4.7 | 3.6 | 2.8 | 2.7 | 2.7 | -0.4 | 0.1 | 0.3 | ||||||||||
| China | 8.1 | 3.3 | 5.4 | 4.9 | 4.7 | -0.9 | 0.1 | -0.2 | ||||||||||
| Hong Kong | 6.4 | 1.0 | 4.2 | 2.4 | 1.9 | -1 | 1.2 | 0.4 | ||||||||||
| India | 8.7 | 7.3 | 6.5 | 6.7 | 6.9 | 0.0 | 0.0 | 0.0 | ||||||||||
| Indonesia | 3.7 | 5.1 | 5.0 | 5.0 | 5.0 | 0.0 | 0.2 | 0.1 | ||||||||||
| Japan | 1.7 | 2.0 | 2.0 | 1.1 | 1.0 | -0.4 | 0.3 | -0.1 | ||||||||||
| Malaysia | 3.1 | 6.1 | 5.0 | 4.6 | 4.6 | 0.3 | -0.4 | -0.1 | ||||||||||
| New Zealand | 5.0 | 2.6 | 3.3 | 2.6 | 2.5 | -0.1 | 0.3 | -0.1 | ||||||||||
| Philippines | 5.6 | 6.5 | 6.6 | 6.9 | 6.6 | 0.0 | -0.2 | -0.1 | ||||||||||
| Singapore | 7.6 | 3.3 | 2.6 | 2.9 | 2.8 | -0.3 | -0.4 | 0.1 | ||||||||||
| South Korea | 4.0 | 2.6 | 2.5 | 2.4 | 2.2 | 0.1 | -0.1 | -0.1 | ||||||||||
| Taiwan | 6.6 | 2.8 | 2.7 | 2.6 | 2.5 | 0.0 | 0.1 | 0.0 | ||||||||||
| Thailand | 1.5 | 3.2 | 4.2 | 3.8 | 3.6 | 0.0 | 0.2 | 0.0 | ||||||||||
| Vietnam | 2.5 | 6.6 | 7.0 | 6.8 | 6.6 | -0.3 | -0.2 | 0.0 | ||||||||||
| Asia Pacific | 6.6 | 4.2 | 5.0 | 4.7 | 4.6 | -0.4 | 0.0 | -0.1 | ||||||||||
| For India, 2021 = FY 2021 / 22, 2022 = FY 2022 / 23, 2023 = FY 2023 / 24, 2024 = FY 2024 / 25, 2025 = FY 2025 / 26. Source: S&P Global Economics. | ||||||||||||||||||
Related Research
Banking Sector Research
- Sector And Industry Variables: Banking Industry Country Risk Assessment Update: July 2022, July 27, 2022
- China's Mortgage Strike Puts Almost RMB1 Trillion In Bank Loans At Risk, July 26, 2022
- Bulletin: Shinhan Financial Group To Prioritize Risk Management Amid Rising Rates, July 22, 2022
- Global Banks Outlook--Midyear 2022: Tougher Tests Ahead, July 21, 2022
- Global Banking Outlook--Midyear 2022: Here Comes The Rain Again, July 21, 2022
- Bulletin: Bank of Ayudhya Can Handle The Curveballs Thrown By Macroeconomic Conditions, July 21, 2022
- Bulletin: Siam Commercial Bank's Ample Buffers To Carry It Through Another Tough Year, July 21, 2022
- Bulletin: TMBThanachart Continues To Tread Cautiously Amid Elevated Risks, July 21, 2022
- Bulletin: KB Financial Group To Generate Steady Profits Despite Heightened Uncertainties, July 21, 2022
- Bulletin: Thailand's KBank Is Walking A Tightrope Between Growth And Asset Quality Preservation, July 21, 2022
- Global Bank Credit Loss Forecasts: Higher Losses Ahead, July 20, 2022
- Bulletin: ANZ's Proposed Acquisition Of Suncorp-Metway Adds Scale And Geographic Diversity, July 19, 2022
- Research Update: Suncorp-Metway Ltd. Outlook Revised To Positive On Planned Acquisition By ANZ; 'A+/A-1' Ratings Affirmed, July 19, 2022
- Macro Risks Increase Headwinds For Taiwan's Stable Credit Outlook, July 14, 2022
- China's Village-Bank Fraud Could Hit Deposits At Smaller Institutions, July 14, 2022
- Bulletin: Single Resolution Board Says That Banks Must Go The Distance To Ensure Full Resolvability, July 13, 2022
- Research Update: China Great Wall Asset Management, Subsidiary Ratings Placed On CreditWatch Negative Following Further Delayed Results, July 12, 2022
- Research Update: China Great Wall Asset Management, Subsidiary Ratings Placed On CreditWatch Negative Following Further Delayed Results, July 12, 2022
- ECB Stress Test: Eurozone Banks Need To Do More To Comprehend Climate Risk, July 11, 2022
- The New Normal For Eurozone Banks: Strong Funding Franchises Are Back In Vogue, July 07, 2022
- Global Sukuk Issuance 2022: How Low Can It Go?, July 04, 2022
- Research Update: Outlooks On AMP Group Entities Revised to Positive; Ratings Affirmed, June 30, 2022
- Bank of England Explores Ways To Increase Banks' Liquid Asset Usability, June 29, 2022
- After A Tougher Fed Stress Test, Capital Requirements Will Rise For Some U.S. Banks, June 28, 2022
- Research Update: ICICI Bank 'BBB-' Rating Affirmed On Improved Asset Quality; Outlook Stable, June 24, 2022
- Credit Trends: From "Whatever It Takes" To Wherever It Leads: How The ECB Has Reshaped The European Economy And Markets, June 23, 2022
- Bulletin: SMBC Group Stake In SBI Would Eventually Lift Retail Revenue, June 22, 2022
- Credit FAQ: U.S. Sanctions On China Banks--Investors Are Not Prepared For This High-Impact Risk, June 20, 2022
- Japanese Regional Banks: Widening Profitability Gaps Despite Favorable Fiscal 2021, June 20, 2022
- Stablecoins' Role In Decentralized Finance Set For Further Disruption, Article Says, June 16, 2022
- Bulletin: China Huarong’s Capitalization Can Withstand Loss From Bank Disposal, June 15, 2022
- Japan Megabanks: Challenges Ahead For Sustained Earnings Capacity, June 14, 2022
- Which Emerging Market Banking Systems Are Most Exposed To External Funding Stress And Why, June 13, 2022
- Bank of England Sees Systemic U.K. Banks As Substantially Resolvable, With Certain Gaps Still To Close, June 10, 2022
- Another Turn Around The Dancefloor As European Governments Eye New Bank Windfall Taxes, June 09, 2022
- When Rates Rise: Not All European Banks Are Equal, June 08, 2022
- Islamic Finance 2022-2023: Same Constraints, New Opportunities, June 06, 2022
- Bulletin: Korean Banks Can Hold On To Improving Profitability, June 02, 2022
- China's COVID Wave Could Add RMB1.1 Trillion In Forborne Bank Loans, June 01, 2022
- Bulletin: KASIKORNBANK Will Strengthen Its Regional Opportunities After Acquiring Indonesian Bank, May 31, 2022
- Bulletin: Chinese Securities Firms Can Withstand COVID-Related Stress, May 31, 2022
- Australian Mutual Lenders Unlikely To Reap Full Benefit Of Rising Rates, May 30, 2022
- For Japan Brokerages, Market Instability Serves Up Key Tests, May 27, 2022
- Industry Report Card: Japan Brokerages Face Stern Stability Tests, May 27, 2022
- Bulletin: Foreign Currency Shortage Hurting Sri Lankan Banks, May 26, 2022
- ESG Credit Indicator Report Card: Financial Market Infrastructure, May 20, 2022
- Banking Risk Indicators: May 2022 Update, May 19, 2022
- ESG Credit Indicator Report Card: U.S., Canadian, And EMEA Nonbank Finance Companies, May 18, 2022
- China's COVID Policy To Further Weigh On Economy, Credit, May 16, 2022
- Research Update: China Great Wall Asset Management And Subsidiary Ratings Affirmed Despite Delayed Results; Outlook Remains Negative, May 13, 2022
- Growing Belief In Southeast Asia's US$290 Billion Islamic Banking Market, May 11, 2022
- Bulletin: Australia's Westpac To Continue To Benefit From Cost Control, May 09, 2022
- Japanese Regional Banks' Entry To Nonbanking Business Needs Extra Attention, May 09, 2022
- Bulletin: Macquarie Group's Diversity Supports Earnings, May 06, 2022
- Capturing Environmental Risks In Banks' Capital Frameworks Is An Ongoing Discussion In Europe, May 06, 2022
- Bulletin: For HSBC, Breaking Up Is Hard To Do, May 06, 2022
- Research Update: Ratings And Outlooks On Various Taiwanese Financial Institutions Revised Following Taiwan Upgrade, May 06, 2022
- Bulletin: National Australia Bank To Grow With Economic Recovery, May 05, 2022
- Bulletin: ANZ's Investments In Operations Should Support Future Growth, May 04, 2022
- Bulletin: Woori Bank's Embezzling Case Raises Internal-Control Risk, May 03, 2022
- Australia's Governments And Banks Remain Resilient To Rising Interest Rates, May 03, 2022
- Research Update: China Merchants Bank, Subsidiaries Outlook Revised To Developing From Positive; 'BBB+' Ratings Affirmed, April 29, 2022
- The Russia-Ukraine Conflict: European Banks Can Manage The Economic Spillovers, For Now, April 21, 2022
- Asia-Pacific Financial Institutions Monitor 2Q 2022: The Comeback Is Now Trickier, April 13, 2022
- After A Big Year, Banks' Capital Markets Revenue Will Likely Fall In 2022, April 12, 2022
- Presentation Delves Into Japan's Complex Corporate Groups, April 05, 2022
- Bulletin: HDFC Bank To Get A Booster Shot After Merger With Parent, April 04, 2022
Economic Research
- Economic Research: Asia-Pacific: Varying Core Inflation Paths Drive Monetary Policy Divergence, July 26, 2022
- This Week In Credit: Credit Remains On Fragile Footing, July 25, 2022
- Economic Research: Emerging Markets: Where Is The Growth Shortfall From Pre-Pandemic Trend?, July 07, 2022
- Global Economic Outlook Q3 2022: Rates Shock Puts The Economy On A Slower Path, June 29, 2022
- S&P Global Ratings Trials Its Credit Cycle Indicator, A Tool For Gauging Credit Conditions, June 27, 2022
- Economic Outlook Asia-Pacific Q3 2022: Overcoming Obstacles, June 27, 2022
- Economic Research: Central Banks And Climate Change, June 16, 2022
- Economic Research: Higher Interest Rates Will Cool Some Red-Hot Residential Markets In Asia, June 16, 2022
- Economic Research: Global Macro Update: Growth Forecasts Lowered On Longer Russia-Ukraine Conflict And Rising Inflation, May 18, 2022
- Economic Research: Interest Rates To Rise Across Asia-Pacific, April 13, 2022
- Economic Research: Korea's Exports Provide An Early Look at Russia-Ukraine Conflict Trade Distortions, April 07, 2022
Sovereign, Credit Markets And Other Research
- Default, Transition, and Recovery: The U.S. Distress Ratio Accelerates To Highest Level Since October 2020, July 21, 2022
- Credit FAQ: China's Defaulted Developers Are Running Out Of Time To Exchange And Extend, July 18, 2022
- Asia-Pacific Sovereign Rating Trends Midyear 2022: Resilience Amid Turbulence, July 14, 2022
- Global Sovereign Rating Trends Midyear 2022: Geopolitical Risks And Surging Inflation Wear On The Post-Pandemic Recovery, July 14, 2022
- Sector Roundup Asia-Pacific Q3 2022: Inflation And China: Rough Ride Ahead, July 04, 2022
- Global Credit Conditions Q3 2022: Resurfacing Credit Headwinds, June 30, 2022
- Credit Conditions: Credit Conditions Asia-Pacific Q3 2022: Costs Heighten, China Growth Tightens, June 28, 2022
- Take A Hike 2022: Which Sovereigns Are Best And Worst Placed To Handle A Rise In Interest Rates, June 22, 2022
- APAC Corporates: Inflation, Rate Strains Set In, June 21, 2022
- Credit Trends: Where To Look For Refinancing Vulnerabilities Through 2023 Amid Market Turmoil, June 13, 2022
- Market Acceptance Of 'B-' Ratings Has Created A Feedback Loop That May Be Challenged, June 07, 2022
- Cutting China From Supply Chains--Easy To Say, Hard To Do, June 01, 2022
- Credit FAQ: Could Increasing Volatility Impact Rating Trends?, May 24, 2022
- Default, Transition, and Recovery: The U.S. Speculative-Grade Corporate Default Rate Could Reach 3% By 2023 As Risks Continue To Increase, May 19, 2022
- The European Speculative-Grade Corporate Default Rate Could Rise To 3% By March 2023, May 18, 2022
- China's Surging Defaults Test Courts And Bond Recovery, May 05, 2022
- China GRE Ratings List--The Stresses Pile On, April 28, 2022
- Credit Trends: Global Financing Conditions: Bond Issuance Looks Set To Contract Almost 5% In 2022 As Conditions Tighten Quickly, April 27, 2022
- China's Property Downcycle Won't End With Policy Easing, April 07, 2022
- Sovereign Debt 2022: Asia-Pacific Central Governments To Borrow US$3.8 Trillion, April 06, 2022
- ESG Risks Negatively Influence Over US$4 Trillion Of Debt At Rated Companies In Asia-Pacific, April 04, 2022
Ratings Methodology News
- Sector And Industry Variables | General Criteria: Methodology For National And Regional Scale Credit Ratings, April 29, 2022
Webcasts: Asia-Pacific Banking Insights
In the last quarter, we have held the following webcasts to share our views on Asia-Pacific and other banking topics. The replays are available on
https://www.spglobal.com/ratings/en/events/webcast-replays/index#
- Mortgage Boycott: Impact On Chinese Developers And Banks, August 02, 2022
- Global Banking Outlook – Midyear 2022: Here Comes The Rain Again [APAC & EMEA Session], July 27, 2022
- Australian Property Spotlight, July 26, 2022
- Spotlight On Emerging - Markets External Funding Stress: Which Emerging Market Banks Are Most Vulnerable, June 29, 2022
- Stablecoins: Common Promises, Diverging Outcomes, June 23, 2022
- Asia-Pacific Financial Institutions: The Comeback From COVID Is Now Trickier, May 11, 2022
Recent BICRA Changes And Full Reports
Over the past quarter (through July 31, 2022), we have made the following changes to our Banking Industry Country Risk Assessments (BICRAs) in the Asia-Pacific region.
Malaysia
We have revised our economic risk trend for Malaysia to stable from negative. This reflects an improvement in operating conditions. Malaysian banks' financial profile will likely stay resilient against higher inflation and rising interest rates. Asset quality risks have subsided, with loans under repayment assistance for rated banks dropping sharply to 5%-6% of domestic loans as of April 30, 2022 from 15%-25% as of Feb. 28, 2022. The NPL ratio also remains contained at 1.6% as of April 2022, marginally higher than 1.4% as of Dec. 31, 2021.
China
Tough COVID-19 restrictions amid a resurgence of infections in China, along with other domestic and external factors, have dampened the improving trend in loan quality of the country's banks. Although supportive financial policies could alleviate some of this burden, the spread of the coronavirus is difficult to predict, and tough restrictions could take a further toll on the slowing economy. We have therefore revised our economic risk trend on Chinese banks to stable from positive.
At this stage, we do not expect the credit quality of Chinese banks to worsen owing to rising economic risks. These entities have significant buffers considering the strengthening trend in the past, and their performance versus that of key global peers remains sound. We could re-evaluate the structural benefits of stable property prices and slower debt growth should the above risks subside. In turn, this could contribute to positive ratings momentum.
Korea
We revised our industry risk score for Korea's BICRA to '3' from '4', and our industry risk trend to stable from positive. We believe industry risk in Korea's banking sector has improved, given the banks' increasing earnings capacity to absorb potential credit losses. We expect Korean banks will be able to maintain improving profitability resulting from rising domestic interest rates. We anticipate an increase in net interest margins will more than offset some rise in credit losses over the next two years. At the same time, adequate underwriting standards and risk management will likely keep overall asset quality sound.
An increase in net interest margins will buoy the banks' profitability. The banks will also continue focusing on enhancing operating efficiency by tight cost controls and offering digital products and services. We forecast their return-on-average assets will gradually improve to about 0.60% in 2024, from about 0.48% in 2021 and 0.43% in 2020. This is higher than that of peers such as France, Germany, and Japan although lower than that of Australia, Hong Kong, and Singapore.
Sri Lanka
In May 2022, we revised our industry risk score for Sri Lanka to '10' from '9'. Operating conditions for Sri Lankan financial institutions will likely remain weak over the next 12 months. After the sovereign default, banks are facing extremely high liquidity risk. There is a loss of appetite in international markets for Sri Lankan debt, leading to lower rollovers. Despite a decline in the proportion of foreign currency liabilities, the banking system's forex liabilities are material at about 20% of total liabilities. Sri Lankan banks have limited access to cross-border funding. The interbank market seems to have completely dried up. We understand a few banks are already delaying payment on their forex obligations due to a foreign currency shortage. External funding for the Sri Lankan banking system will likely continue to shrink for the next few months. The proportion of banks' foreign currency borrowing (typically bank loans and bonds) has been declining in the past few years, and such borrowing was being replaced by foreign currency deposits. However, with the worsening of the sovereign's external financing situation, the foreign currency deposits also fell in the fourth quarter of 2021.
With the aforementioned change, we have also revised our industry risk trend for Sri Lanka to stable from negative. Please note, the Sri Lanka BICRA stands withdrawn as of July 28, 2022.
We have published the following comprehensive BICRA reports in the past quarter in Asia-Pacific.
- Banking Industry Country Risk Assessment: Taiwan, July 27,2022
- Banking Industry Country Risk Assessment: Australia, June 20, 2022
- Banking Industry Country Risk Assessment: Japan, June 15, 2022
- Banking Industry Country Risk Assessment: Sri Lanka, June 13, 2022
- Banking Industry Country Risk Assessment: Singapore, May 24, 2022
- Banking Industry Country Risk Assessment: Brunei, May 19, 2022
- Banking Industry Country Risk Assessment: Vietnam, May 17, 2022
- Banking Industry Country Risk Assessment: India, May 09, 2022
- Banking Industry Country Risk Assessment: New Zealand, May 05, 2022
Chart 1
Chart 2
Chart 3
Table 2
| Issuer Credit Ratings And Component Scores For The Top 60 Asia-Pacific Banks | ||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Institution | Opco L-T ICR/outlook | Anchor | Business position | Capital and earnings | Risk position | Funding and liquidity | Comparable Rating Analysis | SACP or Group SACP | Type of support | No. of notches of support | Additional factor adjustment | |||||||||||||
| Australia | ||||||||||||||||||||||||
| Australia and New Zealand Banking Group Ltd. | AA-/Stable | bbb+ | Strong | Strong | Adequate | Adequate/Adequate | 0 | a | Sys. Imp. | 2 | 0 | |||||||||||||
| Commonwealth Bank of Australia | AA-/Stable | bbb+ | Strong | Strong | Adequate | Adequate/Adequate | 0 | a | Sys. Imp. | 2 | 0 | |||||||||||||
| Macquarie Bank Ltd. | A+/Stable | bbb+ | Adequate | Strong | Adequate | Adequate/Adequate | 0 | a- | Sys. Imp. | 2 | 0 | |||||||||||||
| National Australia Bank Ltd. | AA-/Stable | bbb+ | Strong | Strong | Adequate | Adequate/Adequate | 0 | a | Sys. Imp. | 2 | 0 | |||||||||||||
| Westpac Banking Corp. | AA-/Stable | bbb+ | Strong | Strong | Adequate | Adequate/Adequate | 0 | a | Sys. Imp. | 2 | 0 | |||||||||||||
| China | ||||||||||||||||||||||||
| Agricultural Bank of China Ltd. | A/Stable | bb+ | Very Strong | Adequate | Adequate | Strong/Strong | 0 | bbb+ | GRE | 2 | 0 | |||||||||||||
| Bank of China Ltd. | A/Stable | bbb- | Very Strong | Adequate | Adequate | Strong/Strong | 0 | a- | GRE | 1 | 0 | |||||||||||||
| Bank of Communications Co. Ltd. | A-/Stable | bb+ | Strong | Adequate | Adequate | Strong/Adequate | 0 | bbb- | GRE | 3 | 0 | |||||||||||||
| China CITIC Bank Co. Ltd. | BBB+/Stable | bb+ | Adequate | Constrained | Adequate | Adequate/Adequate | 0 | bb | Group | 4 | 0 | |||||||||||||
| China Construction Bank Corp. | A/Stable | bb+ | Very Strong | Adequate | Adequate | Strong/Strong | 0 | bbb+ | GRE | 2 | 0 | |||||||||||||
| China Merchants Bank Co. Ltd. | BBB+/Developing | bb+ | Strong | Moderate | Strong | Strong/Adequate | 0 | bbb | Sys. Imp. | 1 | 0 | |||||||||||||
| China Minsheng Banking Corp. Ltd. | BBB-/Stable | bb+ | Adequate | Constrained | Adequate | Adequate/Adequate | 0 | bb | Sys. Imp. | 2 | 0 | |||||||||||||
| Hua Xia Bank Co. Ltd. | BBB-/Stable | bb+ | Adequate | Moderate | Moderate | Adequate/Adequate | 0 | bb | GRE | 2 | 0 | |||||||||||||
| Industrial and Commercial Bank of China Ltd. | A/Stable | bb+ | Very Strong | Adequate | Adequate | Strong/Strong | 0 | bbb+ | GRE | 2 | 0 | |||||||||||||
| Postal Savings Bank Of China Co. Ltd. | A/Stable | bb+ | Strong | Moderate | Adequate | Strong/Strong | 0 | bbb | GRE | 3 | 0 | |||||||||||||
| Shanghai Pudong Development Bank Co. Ltd. | BBB/Stable | bb+ | Adequate | Constrained | Adequate | Adequate/Adequate | 0 | bb | GRE | 3 | 0 | |||||||||||||
| Hong Kong | ||||||||||||||||||||||||
| Bank of China (Hong Kong) Ltd. | A+/Stable | bbb+ | Strong | Strong | Adequate | Strong/Strong | 0 | a+ | Sys. Imp. | 1 | -1 | |||||||||||||
| Standard Chartered Bank (Hong Kong) Ltd. | A+/Stable | bbb+ | Adequate | Strong | Adequate | Strong/Strong | 0 | a | Sys. Imp. | 1 | 0 | |||||||||||||
| The Bank of East Asia Ltd. | A-/Stable | bbb+ | Adequate | Adequate | Adequate | Adequate/Adequate | 0 | bbb+ | Sys. Imp. | 1 | 0 | |||||||||||||
| The Hongkong and Shanghai Banking Corp. Ltd. | AA-/Stable | bbb+ | Strong | Strong | Adequate | Strong/Strong | 0 | a+ | Sys. Imp. | 1 | 0 | |||||||||||||
| India | ||||||||||||||||||||||||
| Axis Bank Ltd. | BB+/Positive | bb+ | Strong | Adequate | Moderate | Adequate/Adequate | 0 | bb+ | None | 0 | 0 | |||||||||||||
| Bank of India | BB+/Stable | bb+ | Adequate | Moderate | Constrained | Strong/Strong | 0 | bb | GRE | 1 | 0 | |||||||||||||
| HDFC Bank Ltd. | BBB-/Stable | bb+ | Strong | Adequate | Strong | Strong/Strong | 0 | bbb+ | None | 0 | -2 | |||||||||||||
| ICICI Bank Ltd. § | BBB-/Stable | bb+ | Strong | Adequate | Adequate | Adequate/Adequate | 0 | bbb- | None | 0 | 0 | |||||||||||||
| State Bank of India | BBB-/Stable | bb+ | Strong | Moderate | Moderate | Strong/Strong | 0 | bbb- | None | 0 | 0 | |||||||||||||
| Indonesia | ||||||||||||||||||||||||
| PT Bank Mandiri (Persero) | BBB-/Stable | bb+ | Strong | Strong | Moderate | Adequate/Strong | 0 | bbb- | None | 0 | 0 | |||||||||||||
| PT Bank Rakyat Indonesia (Persero) Tbk. | BBB-/Stable | bb+ | Strong | Strong | Moderate | Adequate/Strong | 0 | bbb- | None | 0 | 0 | |||||||||||||
| Japan | ||||||||||||||||||||||||
| Chiba Bank Ltd. | A-/Stable | bbb+ | Adequate | Adequate | Strong | Adequate/Strong | 0 | a- | None | 0 | 0 | |||||||||||||
| Mitsubishi UFJ Financial Group Inc.* | A/Stable | bbb+ | Strong | Adequate | Adequate | Strong/Strong | 0 | a | None | 0 | 0 | |||||||||||||
| Mizuho Financial Group Inc.* | A/Stable | bbb+ | Strong | Adequate | Adequate | Strong/Strong | 0 | a | None | 0 | 0 | |||||||||||||
| Nomura Holdings Inc.* | A-/Stable | bbb+ | Moderate | Strong | Moderate | Adequate/Adequate | 0 | bbb | Sys. Imp. | 2 | 0 | |||||||||||||
| Norinchukin Bank | A/Stable | bbb+ | Moderate | Strong | Moderate | Strong/Strong | 0 | bbb+ | Sys. Imp. | 2 | 0 | |||||||||||||
| Resona Holdings* | A/Stable | bbb+ | Adequate | Adequate | Adequate | Strong/Strong | 0 | a- | Sys. Imp. | 1 | 0 | |||||||||||||
| Shinkin Central Bank | A/Stable | bbb+ | Adequate | Adequate | Adequate | Adequate/Strong | 0 | bbb+ | Sys. Imp. | 2 | 0 | |||||||||||||
| Shizuoka Bank Ltd. | A-/Stable | bbb+ | Adequate | Strong | Adequate | Adequate/Strong | 0 | a- | None | 0 | 0 | |||||||||||||
| Sumitomo Mitsui Financial Group Inc.* | A/Stable | bbb+ | Strong | Adequate | Adequate | Strong/Strong | 0 | a | None | 0 | 0 | |||||||||||||
| Sumitomo Mitsui Trust Holdings* | A/Stable | bbb+ | Strong | Adequate | Adequate | Adequate/Strong | 0 | a- | Sys. Imp. | 1 | 0 | |||||||||||||
| Korea | ||||||||||||||||||||||||
| Industrial Bank of Korea | AA-/Stable | bbb+ | Adequate | Adequate | Adequate | Adequate/Adequate | 0 | bbb+ | GRE | 4 | 0 | |||||||||||||
| KEB Hana Bank | A+/Stable | bbb+ | Strong | Adequate | Adequate | Adequate/Adequate | 0 | a- | Sys. Imp. | 2 | 0 | |||||||||||||
| Kookmin Bank | A+/Stable | bbb+ | Strong | Adequate | Adequate | Adequate/Adequate | 0 | a- | Sys. Imp. | 2 | 0 | |||||||||||||
| Korea Development Bank§ | AA/Stable | bbb+ | Moderate | Moderate | Constrained | Moderate/ Adequate | 0 | bb- | GRE | 10 | 0 | |||||||||||||
| Nonghyup Bank | A+/Stable | bbb+ | Strong | Adequate | Adequate | Strong/ Adequate | 0 | a- | GRE | 2 | 0 | |||||||||||||
| Shinhan Bank | A+/Stable | bbb+ | Strong | Adequate | Adequate | Adequate/Adequate | 0 | a- | Sys. Imp. | 2 | 0 | |||||||||||||
| Woori Bank | A+/Stable | bbb+ | Strong | Adequate | Adequate | Adequate/Adequate | 0 | a- | Sys. Imp. | 2 | 0 | |||||||||||||
| Malaysia | ||||||||||||||||||||||||
| Public Bank Bhd. | A-/Stable | bbb | Strong | Adequate | Strong | Strong/Strong | 0 | a | None | 0 | -1 | |||||||||||||
| Malayan Banking Bhd. | A-/Stable | bbb | Strong | Adequate | Adequate | Strong/Strong | 0 | a- | None | 0 | 0 | |||||||||||||
| CIMB Bank Bhd. | A-/Stable | bbb | Strong | Adequate | Adequate | Strong/Strong | 0 | a- | None | 0 | 0 | |||||||||||||
| New Zealand | ||||||||||||||||||||||||
| ANZ Bank New Zealand Ltd. | AA-/Stable | bbb | Strong | Strong | Adequate | Adequate/Adequate | 0 | a- | Group | 3 | 0 | |||||||||||||
| ASB Bank Ltd. | AA-/Stable | bbb | Strong | Strong | Adequate | Adequate/Adequate | 0 | a- | Group | 3 | 0 | |||||||||||||
| Bank of New Zealand | AA-/Stable | bbb | Strong | Strong | Adequate | Adequate/Adequate | 0 | a- | Group | 3 | 0 | |||||||||||||
| Westpac New Zealand Ltd. | AA-/Stable | bbb | Strong | Strong | Adequate | Adequate/Adequate | 0 | a- | Group | 3 | 0 | |||||||||||||
| Singapore | ||||||||||||||||||||||||
| DBS Bank Ltd. | AA-/Stable | bbb+ | Strong | Adequate | Adequate | Strong/ Strong | 0 | a | Sys. Imp. | 2 | 0 | |||||||||||||
| Oversea-Chinese Banking Corp. Ltd. | AA-/Stable | bbb+ | Strong | Adequate | Adequate | Strong/ Strong | 0 | a | Sys. Imp. | 2 | 0 | |||||||||||||
| United Overseas Bank Ltd. | AA-/Stable | bbb+ | Strong | Adequate | Adequate | Strong/ Strong | 0 | a | Sys. Imp. | 2 | 0 | |||||||||||||
| Taiwan | ||||||||||||||||||||||||
| CTBC Bank Co. Ltd. | A/Stable | bbb | Strong | Strong | Adequate | Adequate/Strong | 0 | a- | Sys. Imp. | 1 | 0 | |||||||||||||
| Mega International Commercial Bank Co. Ltd. | A+/Stable | bbb | Strong | Strong | Adequate | Adequate/Adequate | 0 | a- | Sys. Imp. | 2 | 0 | |||||||||||||
| Thailand | ||||||||||||||||||||||||
| Bangkok Bank Public Co. Ltd. | BBB+/Stable | bb | Strong | Adequate | Adequate | Strong/ Strong | 0 | bbb- | Sys. Imp. | 2 | 0 | |||||||||||||
| KASIKORNBANK PCL | BBB/Stable | bb | Strong | Adequate | Adequate | Adequate/Strong | 0 | bb+ | Sys. Imp. | 2 | 0 | |||||||||||||
| Krung Thai Bank Public Co. Ltd. | BBB-/Stable | bb | Adequate | Adequate | Adequate | Adequate/Adequate | 0 | bb | Sys. Imp. | 2 | 0 | |||||||||||||
| Siam Commercial Bank Public Co. Ltd. | BBB/Stable | bb | Strong | Adequate | Adequate | Adequate/Strong | 0 | bb+ | Sys. Imp. | 2 | 0 | |||||||||||||
| Data as of July 25, 2022. "Type of Support" column -"None" includes some banks where ratings uplift because of support factors may be possible but none is currently included. (For example, this column includes some systemically important banks where systemic importance results in no rating uplift). *Holding company; the rating reflects that on the main operating company. ICR--Issuer credit rating. GRE--Government-related entity. SACP--Stand-alone credit profile. Sys. Imp.--Systemically important. ALAC--Additional loss-absorbing capacity. N/A--Not applicable. Sov --Capped by Sovereign Rating. §This ICR applies to the Foreign Currency Rating only. | ||||||||||||||||||||||||
Table 3
| Recent Rating Actions: Asia-Pacific Banks | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Release date | Org legal name | Org country | From | To | ||||||
| 19/07/2022 | Suncorp-Metway Ltd. | Australia | A+/Negative/A-1 | A+/Positive/A-1 | ||||||
| 30/06/2022 | AMP Bank Ltd. | Australia | BBB/Stable/A-2 | BBB/Positive/A-2 | ||||||
| 30/06/2022 | AMP Ltd. | Australia | BBB-/Stable/-- | BBB-/Positive/-- | ||||||
| 29/06/2022 | Hokuriku Bank Ltd. | Japan | A-/Negative/-- | A-/Stable/-- | ||||||
| 29/06/2022 | Suncorp-Metway Ltd. | Australia | AA-/Stable/A-1+ | A+/Negative/A-1 | ||||||
| 28/06/2022 | AmBank (M) Berhad | Malaysia | BBB+/Negative/A-2 | BBB+/Stable/A-2 | ||||||
| 28/06/2022 | CIMB Bank Berhad | Malaysia | A-/Negative/A-2 | A-/Stable/A-2 | ||||||
| 28/06/2022 | Higo Bank Ltd. | Japan | A-/Negative/A-2 | BBB+/Stable/A-2 | ||||||
| 28/06/2022 | Kagoshima Bank Ltd. | Japan | A-/Negative/A-2 | BBB+/Stable/A-2 | ||||||
| 28/06/2022 | Malayan Banking Berhad | Malaysia | A-/Negative/A-2 | A-/Stable/A-2 | ||||||
| 28/06/2022 | Public Bank Berhad | Malaysia | A-/Negative/A-2 | A-/Stable/A-2 | ||||||
| 28/06/2022 | RHB Bank Berhad | Malaysia | BBB+/Negative/A-2 | BBB+/Stable/A-2 | ||||||
| 15/06/2022 | Baiduri Bank Berhad | Brunei Darussalam | BBB+/Positive/A-2 | A-/Stable/A-2 | ||||||
| 31/05/2022 | Bank of Communications (Hong Kong) Limited | Hong Kong | A-/Positive/A-2 | A-/Stable/A-2 | ||||||
| 31/05/2022 | Bank of Communications Co. Ltd. | China | A-/Positive/A-2 | A-/Stable/A-2 | ||||||
| 31/05/2022 | China CITIC Bank Corporation Limited | China | BBB+/Positive/A-2 | BBB+/Stable/A-2 | ||||||
| 31/05/2022 | China Minsheng Banking Corp., Ltd. | China | BBB-/Positive/A-3 | BBB-/Stable/A-3 | ||||||
| 30/05/2022 | Taiwan Shin Kong Commercial Bank Co. Ltd. | Taiwan | BBB/Negative/A-2 | BBB/Stable/A-2 | ||||||
| 27/05/2022 | Bank for Foreign Trade of Vietnam | Vietnam | BB-/Positive/B | BB/Stable/B | ||||||
| 27/05/2022 | Shinhan Bank Vietnam | Vietnam | BB/Positive/B | BB+/Stable/B | ||||||
| 6/05/2022 | Bank of Taiwan | Taiwan | AA-/Positive/A-1+ | AA/Stable/A-1+ | ||||||
| 6/05/2022 | Cathay United Bank Co. Ltd. | Taiwan | A-/Positive/A-2 | A/Stable/A-1 | ||||||
| 6/05/2022 | Chang Hwa Commercial Bank Ltd. | Taiwan | A-/Positive/A-2 | A/Stable/A-1 | ||||||
| 6/05/2022 | E.SUN Commercial Bank Limited | Taiwan | A-/Positive/A-2 | A/Stable/A-1 | ||||||
| 6/05/2022 | First Commercial Bank Ltd. | Taiwan | A-/Positive/A-2 | A/Stable/A-1 | ||||||
| 6/05/2022 | Hua Nan Commercial Bank Ltd. | Taiwan | A-/Positive/A-2 | A/Stable/A-1 | ||||||
| 6/05/2022 | Taipei Fubon Commercial Bank Co. Ltd. | Taiwan | A-/Positive/A-2 | A/Stable/A-1 | ||||||
| 6/05/2022 | Taiwan Cooperative Bank Ltd. | Taiwan | A/Positive/A-1 | A+/Stable/A-1 | ||||||
| 29/04/2022 | China Merchants Bank Co. Ltd. | China | BBB+/Positive/A-2 | BBB+/Developing/A-2 | ||||||
| 28/04/2022 | PT Bank Mandiri (Persero) | Indonesia | BBB-/Negative/A-3 | BBB-/Stable/A-3 | ||||||
| 28/04/2022 | PT Bank Negara Indonesia (Persero) Tbk. | Indonesia | BBB-/Negative/A-3 | BBB-/Stable/A-3 | ||||||
| 28/04/2022 | PT Bank Rakyat Indonesia (Persero) Tbk. | Indonesia | BBB-/Negative/A-3 | BBB-/Stable/A-3 | ||||||
| *Recent rating actions are for the period Apr. 1, 2022 to Jul. 25, 2022. The list refers to banks and bank holding companies (banks) where the rating has been upgraded or downgraded, or the outlook has been changed. Banks where the ratings have been affirmed or the outlooks have not been changed are not included in the list. | ||||||||||
Design: Halie Mustow; editing: Lex Hall
This report does not constitute a rating action.
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| Primary Credit Analyst: | Gavin J Gunning, Melbourne + 61 3 9631 2092; gavin.gunning@spglobal.com |
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