Asia-Pacific banks' sound provisioning and stable revenue-generation and capitalization should protect them from asset quality pressures even as S&P Global Ratings estimates a 7% increase in their credit losses in 2023.
Credit losses at the region's banks will climb to $485 billion in 2023, and by a further 9% to $528 billion in 2024, Ratings said in a chartbook published Aug. 9. Still, the rating agency said the expected higher credit losses should be within its current rating boundaries for most banks, and its stable outlook for the banking sector is likely to persist.
Ratings said its outlook for the vast majority of banks is stable, mainly underpinned by stronger growth in the region, relative to elsewhere, and buffers and support.
Asia-Pacific is projected to fare better in terms of economic growth than other regions in the world. The Asian Development Bank on July 19 said it maintained its growth outlook for developing economies in Asia and the Pacific at 4.8% in 2023, as well as a 5.0% growth for China, citing robust domestic demand, falling inflation and the reopening of the People's Republic of China. Similarly, Ratings said in June that it expects 3.8% GDP growth in 2023 for Asia-Pacific, excluding China, after a 4.7% expansion in 2022. For China, it nudged down its growth forecast to 5.2% from 5.5%.
Meanwhile, GDP growth in the US is expected at a tepid 1.7% and the eurozone just 0.6% in 2023, Ratings added.
China, rest of Asia-Pacific
Credit losses at banks in China and their peers in other Asia-Pacific markets will rise due to different factors, according to Ratings.
While China's economic recovery is putting banks on the road to normalization, higher credit losses are anticipated, including from the property and small business sectors, Ratings said. Further, commercial banks in the country will likely see lower credit costs and write-offs, with credit costs as a percentage of total loans expected to trend downwards.
"For Asia-Pacific (ex-China) the increase in credit losses to US$81 billion in 2023 from $61 billion in 2022 is materially higher as the full impact of rate hikes takes its toll on borrowers, and as the weaker growth environment persists," the rating agency said.
In India, Ratings expects credit losses to structurally trend down and nonperforming assets as a percentage of systemwide loans to continue to improve. Returns on average assets have recovered for banks in the South Asian country and are comparable to peers.
Credit costs for Japanese banks are likely to stay low for the next two to three years, with persistent low profitability a challenge for the banking system. On the other hand, earnings are expected to remain strong for Australian banks and their credit losses should remain low, with low unemployment expected to staunch such losses, the rating agency said.
