Several potential 'fallen angel' Asia-Pacific banks face Covid-19 threat: S&P

Wednesday, December 2, 2020 - 15:54
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SEVERAL potential "fallen angel" banks across the Asia-Pacific face risks from a more severe economic downturn due to the Covid-19 pandemic, credit rating agency S&P Global Ratings said on Tuesday.

S&P calls a rated entity a "fallen angel" if it lowers the latter's rating to a speculative grade (long-term rating of BB+ or lower) from an investment grade (long-term rating of BBB- or higher). For the purposes of its report, S&P considers as fallen angels both entities with and without rated debt outstanding.

Potential "fallen angels" are issuers rated BBB- with negative outlooks or on CreditWatch negative, it said. They are China Guangfa Bank, India's ICICI Bank and Indian Bank, Indonesia's Bank Mandiri, Bank Negara Indonesia and Bank Rakyat Indonesia, the Philippines' Security Bank Corp, as well as Cayman Island's Noah Holdings.

Some main downside scenarios are risk-adjusted capital (RAC) ratios falling below a certain level, rising credit costs, a lowered sovereign rating on certain countries and a worsening operating environment.

Three financial institutions in the region have been considered "fallen angels" since the Covid-19 outbreak. They are India banks Axis Bank, Bajaj Finance and Hero FinCorp.

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Heightened economic risks facing India's banking system and weaker operating conditions for Indian financial institutions were among the reasons for downgrades in Axis Bank and Bajaj Finance. S&P's view that financially stronger parent Hero MotoCorp's ability to support Hero FinCorp has also diminished, leading to the downgrade.

Main triggers for lowering the ratings on BBB- rated Asia-Pacific banks include a material increase in credit losses; deterioration in RAC ratios and a weakening of sovereign creditworthiness, S&P said.

S&P credit analyst Sharad Jain said the credit rating agency sees a significant risk that more banks in the Asia-Pacific will join the list of fallen angels in the next two years.

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