KUALA LUMPUR, July 16 (Bernama) -- Asia-Pacific banking systems, which have been operating in a favourable environment with low interest rates, robust economic growth and strong loan growth, have likely reached a cyclical peak, says Moody's Investors Service.
Stephen Long, Managing Director, Moody's Asia-Pacific Financial Institutions Group, said during the wake of the global financial crisis, regional banks had been resilient.
"However, borrowers' leverage has increased, asset prices have materially appreciated and in the process, both borrowers and banks may have become more susceptible to asset quality deterioration, especially if the interest rate cycle turns," he was quoted in a statement today.
The credit rating agency said the increased likelihood of the tightening of the US monetary policy, coupled with a higher probability of a tapering of quantitative easing, could be a potential trigger for turning points in banking credit cycles.
Long noted that the exit from loose monetary policies in the developed economies would test Asian banks' asset quality in the next two to three years.
Other factors that could put pressure on the region's credit conditions include China's economic rebalancing, Asian regulators' stance with regards to bank resolution regimes as well as whether Abenomics in Japan would work as intended.
"While we expect Asean banks to remain resilient, we note that downside risks are increasing, and these growing risks to economic and financial stability are driving diverging outlooks for the region's banking systems.
"In terms of continued support, Asean banks face expanding markets as domestic wealth continues to rise, and they have also been improving their profitability and capital buffers against any weakness in asset quality and liquidity," Long added.
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