Most Apac banks sufficiently diversified, capitalised to weather property downturn: S&P
MOST banks in the Asia-Pacific region can likely manage a property downturn as they have sufficiently diverse lending and are adequately capitalised, said S&P Global Ratings.
While the property sector is weak in several key economies, especially in China, no banking system in Asia-Pacific is in significant difficulty yet, the research team said in a report on Wednesday (Aug 30).
S&P noted that Asia-Pacific lenders are closely regulated and built to withstand the frequent bouts of volatility that roll through the region.
Even as banks across the region face a broad spread of property risks, most economic and industry trends in Asia-Pacific remain stable.
“This indicates that banking jurisdictions have some scope to contend with heightened property risks in the context of current ratings and outlooks,” the report said.
The research team noted that property markets can quickly move from downturn to crisis, however, even as it views the unfolding strains as broadly manageable across Asia-Pacific banking systems.
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Of all the markets in the region, China is likely the most severely affected and the “epicentre of the region’s property strains”, S&P said.
But the report also said risks should be manageable as institutions likely have sufficient capital buffer to absorb potential losses from property-sector writedowns.
A property downturn and other risks to asset quality metrics will also unlikely hit S&P’s ratings of these Chinese banks immediately, given that it has already assessed economic risks as high.
The full impact on banks from property sector risks in China is still a work-in-progress, S&P said, adding that it expects lenders to be more likely to suffer non-payment from property development loans.
As for other parts of North Asia, the report noted that property downturn strains are not significant – Japanese lenders, in particular, are equipped to handle current strains, due to their conservative capitalisations and diverse lending book.
Meanwhile, conditions in South-east Asia are more patchy, with commercial real estate exposure an area of risk.
Rising interest rates and inflation will weigh on the debt service burden of households. But given the broadly stable employment conditions, risks will likely remain manageable for banks, the research team said.
As for Australia, while the level of non-performing mortgages is starting to rise, S&P expects it will remain low, particularly from a historical comparison.
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