Moody's changed its outlook on 12 Asia-Pacific banking systems to negative and maintained negative outlook on two banking systems as it expects coronavirus-related disruptions to weaken operating environment and weigh on banks' asset quality.
The rating agency said April 2 that it changed outlooks to negative for banking systems in Australia, China, India, Indonesia, South Korea, Malaysia, New Zealand, Philippines, Singapore, Taiwan, Thailand and Vietnam. It expects the operating environment for these banking systems to deteriorate significantly from disruption brought on by the virus outbreak.
The disruptions will slow down business activity and increase asset risk and credit costs, leading to a decline in bank profitability, Moody's said. While systemically important banks in most countries will receive government support, the same might not be the case for most smaller banks, the agency noted.
Moody's added that the Thailand banking system's outlook was lowered to negative from positive, as the operating environment for banks is expected to worsen over the next 12 to 18 months. It expects the country's exports to contract and private consumption to weaken, as well as asset quality to slump, as borrowers' debt-servicing capacity weakens.
Moody's also maintained a negative outlook on the banking systems of Hong Kong and Japan, saying the outbreak, along with trade tensions and public protests, added further strain on Hong Kong. In Japan, the outbreak added to pressure from an ageing and shrinking population, as well as ultralow interest rates.