The Hindu Business Line : Turbulence ahead for Asian banks, says S&P

The report titled “Slower economic growth poses turbulence but no crisis for Asian Banking Systems,” however warned that while they might have escaped the turmoil of the US sub-prime crisis, they were not immune to economic slowdowns. The milder impact was due to better economic outlook in these countries and regulatory frameworks and banks’ credit profiles that have strengthened considerably here.

“Bearish market sentiment has been trampling equity markets and that will take some shine off trading and fee income for some banking systems,” said Standard & Poor’s credit analyst, Mr Ritesh Maheshwari.

The report said that the sensitivity of banking systems to economic declines depends broadly on the total debt in the system (corporate and household) and the strength of the banking industry to withstand or respond to changes in the environment.

On that parameter, Vietnam may be the most vulnerable, the report said. The steep rise in interest rates in Vietnam and India will be an additional pressure point for many borrowers.

While unsecured consumer loans (including credit card outstandings) are always the first to show stress, other loan classes are not immune. S & P expects the next couple of quarterly results to show this trend. It added that Indian banks, due to their sizeable holding of government securities, will additionally face the pressure of mark-to-market write-downs on their statutory liquidity ratio portfolios.

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