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Asset Risks To Rise For ASEAN, India Banks But Credit Strength To Remain Intact: Rating Agency

Banks in ASEAN and India have strong loss-absorbing buffers, Moody’s Investors Service said.

SINGAPORE — Banks’ asset risks will rise in most parts of the Association of Southeast Asian Nations (ASEAN) and India as the region battles new waves of coronavirus infections amid low vaccination rates, credit rating agency Moody’s Investors Service said on Aug. 11.

Multiple rounds of coronavirus outbreaks that led to strict containment measures will impede economic recovery and erode borrowers’ debt repayment capacity, Moody’s said in the latest in-depth report.

“Banks in Thailand, the Philippines, and Indonesia are particularly vulnerable as their economies struggle with elevated numbers of virus cases, heightening uncertainties around the reopening of their economies,” Rebecca Tan, a vice-president and senior analyst at Moody’s, said.

“Yet policy support for borrowers and the concentration of the economic impact on a few economic segments will limit the deterioration of banks’ overall asset quality.”

Moody’s also said that banks in ASEAN and India have strong loss-absorbing buffers. These factors will keep their credit strength intact.

“In India, despite the second wave of coronavirus infections, we expect economic activity will decline only in the first quarter of fiscal 2021 and rebound afterward, resulting in real GDP growth of 9.3 percent in fiscal 2021 compared with a contraction of 7.2 percent in the previous year,” Moody’s said.

Compared to policy responses to the first wave, the latest containment measures are more localized and shorter.

Moody’s said the economic recovery would support employment and corporate earnings. However, the coronavirus outbreaks have hurt the financial buffers of Small and medium-sized enterprises, putting the quality of these loans at risk in the absence of support measures.

By contrast, the resumption of global economic activity will boost trade growth in Vietnam, Malaysia, and Singapore, which will help offset domestic economic disruptions from the pandemic.

Beyond the pandemic, ASEAN and India will likely register faster growth than most other regions in 2021-22, a positive for banks. However, performance across the region will increasingly diverge because of the different extent of economic scarring caused by the pandemic.

Finally, the growing young populations in economies such as India, Indonesia, Malaysia, and the Philippines could help accelerate economic expansion and boost overall wealth, which will lead more people to engage in banking services, the report said.

This, however, will depend highly on the governments’ ability to support domestic labor markets, said Moody’s.

The credit rating agency also recently released a report that said that the Asia-Pacific region’s growth would rebound to 6.7 percent in 2021. The strong rebound is mainly because of high income and has mature institutions, strong healthcare infrastructure, and dynamic labor markets, as per Moody’s.

(With inputs from ANI)

Edited by Amrita Das and Praveen Pramod Tewari