Moody's said Dec. 13 that the outlook on Asia-Pacific banks in 2017 is negative due to the region's challenging operating conditions, which will place pressure on lenders' asset quality and profitability.
Problem assets will increase due to previous rapid credit expansion, elevated corporate and household leverage in some economies, the ongoing recognition of credit problems, as well as challenges in commodities and cyclical industries, said Stephen Long, managing director at Moody's.
The rise in property prices in parts of Asia-Pacific will bolster credit risk for banks, Long added. Banks' profitability will be pressured by higher credit costs, with Chinese banks in particular facing credit challenges due to China's slowing growth, a rise in corporate sector restructurings and heightened concerns over elevated asset prices in some areas, Moody's said.
Despite the negative outlook on Asia-Pacific banks, Moody's said that downside risks for the lenders are partly offset by their improving capital levels, as well as their strong funding and liquidity profiles.