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Asset quality risks for banks to rise in most parts of ASEAN and India: Moody's

11 Aug 2021 Evaluate

Rating agency Moody's has said the asset quality risks for banks will rise in most parts of ASEAN and India, as the region battles new waves of coronavirus infections amid low vaccination rates. Yet the continued policy support and strong loss-absorbing buffers will help to mitigate the negative impact. For banks in ASEAN and India, coronavirus outbreaks triggering strict containment steps will impede economic recovery and erode borrowers' debt repayment capacity, increasing their asset risks. Besides, strong loss-absorbing buffers, the policy support and the virus impact focused on a few segments will keep their credit strength intact.

It mentioned, for India (Baa3 negative), the economy will return to growth in the fiscal year ending March 2022. But, the severe second coronavirus outbreak will delay improvements in asset quality. By contrast, the resumption of global economic activity will boost trade growth in Vietnam (Ba3 positive), Malaysia (A3 stable) and Singapore (Aaa stable). The financial impact of a prolonged pandemic is concentrated on a few economic segments, which will limit the deterioration in banks' overall asset quality.

More fundamentally, various regulatory measures implemented in the past decade to strengthen banks' balance sheets have led banks to face the pandemic on a strong footing. Since the onset of the pandemic, most banks in the region have built sufficient loan loss buffers to cover likely increases in nonperforming loans. It added the deadlines on many of these measures have also been extended this year with the resurgences of coronavirus cases. For example, the Reserve Bank of India recently extended the deadline on liquidity support measure. RBI also relaxed certain parameters of its loan restructuring program in response to the severe impact of the second wave in India on borrowers.

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