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Credit Trends: Seven Potential Fallen Angel Banks Across Asia-Pacific Face COVID-19 Threat


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Credit Trends: Seven Potential Fallen Angel Banks Across Asia-Pacific Face COVID-19 Threat

(Editor's Note: In the original version of this article published Dec. 2, 2020, we misstated the outlook on Orient Securities Co. Ltd. The outlook is negative. A corrected version, including a revision to the total number of NBFIs on negative outlook in this report, follows.)

There have been three fallen angel financial institutions in Asia-Pacific since the COVID-19 outbreak (see table 1). We call a rated entity a fallen angel if we lower our rating on it to speculative-grade (a long-term rating of 'BB+' or lower) from investment-grade (a long-term rating of 'BBB-' or higher). For the purpose of this article, we consider as fallen angels both entities with and without rated debt outstanding. Note that S&P Global Ratings' usual series on fallen angels and potential fallen angels limits the definitions to those with outstanding rated debt (see "Credit Trends: Potential Fallen Angels Decrease As Immediate Downgrade Risks Recede," published on Oct. 31, 2020). Potential fallen angels are issuers rated 'BBB-' with negative outlooks or on CreditWatch negative.

Chart 1


We see a significant risk that more banks in Asia-Pacific will join the list of fallen angels in the next two years (see chart 1). A more severe economic downturn due to the COVID-19 outbreak and containment measures presents the key risk to our ratings on the 'BBB-' rated banks in Asia-Pacific. In addition, like most banks globally, these banks are exposed to three other elevated risks (see chart 2).

Chart 2


We have negative outlooks on six of the 15 'BBB-' rated banks in the region (see Appendix 1). In addition, we have placed our ratings on one of these banks on CreditWatch with negative implications. In contrast, we have a negative outlook on only two of the 11 'BBB-' rated nonbank financial institutions (NBFIs) in the region (see Appendix 2).

Table 1

Fallen Angel Financial Institutions In Asia-Pacific Since The COVID-19 Outbreak
Org. name Org. type Org. country Current rating Date of downgrade Downgrade rationale in brief*
Axis Bank Ltd. Bank India BB+/Stable/B June 26, 2020 We expect that heightened economic risks facing India's banking system will affect the bank's asset quality and financial performance.
Bajaj Finance Ltd. Finance company India BB+/Stable/B June 26, 2020 We believe the company's asset quality and credit costs will deteriorate over the next 12 months due to weaker operating conditions faced by Indian financial institutions.
Hero FinCorp Ltd. Finance company India BB+/Stable/B April 21, 2020 Our view that financially stronger parent Hero MotoCorp's ability to support Hero FinCorp has diminished. Hero MotoCorp's automotive sales and revenues have declined in the past 12 months. We expect the decline and the tough operating conditions to continue in the next few quarters.
*This table includes only the abbreviated rationale for the downgrade. Data as of Nov. 25, 2020. Source: S&P Global Ratings.

A More Severe Economic Downturn Than Our Base Case Could Drive Downgrades

Our main triggers for lowering the ratings on the 'BBB-' rated banks in Asia-Pacific include (see table 2):

  • A material increase in credit losses;
  • Deterioration in risk-adjusted capital (RAC) ratios; and
  • A weakening of sovereign creditworthiness.

In our opinion, a deeper or longer economic downturn than our base case due to the COVID-19 outbreak and containment measures is the most foreseeable driver of these scenarios. In addition, deterioration in system-level economic risks facing banks in a given country could trigger downgrades of several financial institutions in that country.

Table 2

Downgrade Scenarios For Potential Fallen Angel Financial Institutions In Asia-Pacific
Org. name Org. country Main downside scenario in brief*
China Guangfa Bank Co. Ltd. China Risk-adjusted capital (RAC) ratio drops below 5% on a sustained basis. This could be due to a severe spike in loan loss provisions or continued strong loan growth that is not matched by capital generation capability.
Orient Securities Co. Ltd. China RAC ratio falls below 10% over the next two years; positive developments to enhance risk controls are no longer sufficient to offset risk position weaknesses; or reliance on market-sensitive income increases significantly.
ICICI Bank Ltd. India The bank does not maintain a RAC ratio above 10% on a sustained basis. This could happen if credit costs rise sharper than our expectation or if the bank's capital strengthening is less than we expect.
Indian Bank India RAC ratio falls below 5% on a sustained basis; or nonperforming loan (NPL) ratio or credit costs rise sharply and we believe they are likely to remain at that level or increase further.
PT Bank Mandiri (Persero) Indonesia We lower the sovereign rating on Indonesia by a notch; and tough operating conditions lead to lowering of asset quality or capital levels.
PT Bank Negara Indonesia (Persero) Tbk. Indonesia We lower the sovereign rating on Indonesia by a notch; and a worsening operating environment leads to a substantial rise in NPLs and credit costs.
PT Bank Rakyat Indonesia (Persero) Tbk. Indonesia We lower the sovereign rating on Indonesia by a notch; and a worsening operating environment leads to a substantial rise in NPLs and credit costs.
Security Bank Corp. Philippines Economic risks for the Philippine banking industry worsen; the bank's capital position erodes, such that its risk-adjusted capital (RAC) ratio is likely to fall below 10% on a sustained basis.
Noah Holdings Ltd. Cayman Islands Assets under management, business flows, and ability to generate income significantly weaken. Legal risk rises, possibly due to adverse and significant litigation outcomes.
*This table includes only the abbreviated downside scenarios. Source: S&P Global Ratings.

In addition, several factors could be masking or delaying manifestation of underlying asset quality problems in some markets. These include borrower repayment moratoriums, forbearance by landlords in some jurisdictions, renegotiation of borrower arrangements by banks, and record-low interest rates.

Sovereign-Related Factors Could Cushion The Blow For Some Banks

Ratings on two 'BBB-' rated banks in India and three in Indonesia can withstand a two- or three-notch deterioration in their stand-alone credit profile (SACP), other factors unchanged. The sovereign cap that currently applies to our rating on India's HDFC Bank Ltd. affords it a two-notch buffer. Rating uplift due to government support would likely prevent a downgrade for four banks:

  • The SACP of India-based State Bank of India can withstand a two-notch weakening in its SACP.
  • Indonesia-based PT Bank Mandiri (Persero), PT Bank Negara Indonesia (Persero) Tbk., and PT Bank Rakyat Indonesia (Persero) Tbk can withstand up to a three-notch weakening in their SACPs.

Although we have negative outlooks on these three Indonesian banks, our most likely downgrade scenario for them is a combination of a sovereign downgrade and weaker SACP.

All four 'BBB-' rated Chinese banks benefit from rating uplift due to likely government support. There is no headroom for a weakening in their SACPs at the current rating level, however.

Group Support Shields Most NBFIs From Downside Risks

Ratings on 10 of the 11 'BBB-' rated NBFIs in Asia-Pacific depend on group support. Four of these are holding companies, whereas the remaining six are operating subsidiaries. The two main downside risks to our ratings on these NBFIs are:

  • A weakening in group credit profile--which applies to the holding companies as well as to the operating subsidiaries; and
  • A diminution in the likelihood of group support, if needed for the operating companies.

We have stable outlooks on nine of the 11 'BBB-' rated NBFIs in Asia-Pacific because we do not see any significant downside risks to our ratings on these companies. Nevertheless, a significantly more severe economic downturn than our base case would place downside pressure on all our ratings.

COVID-19: High Degree Of Uncertainty Persists

S&P Global Ratings believes there remains a high degree of uncertainty about the evolution of the coronavirus pandemic. Reports that at least one experimental vaccine is highly effective and might gain initial approval by the end of the year are promising, but this is merely the first step toward a return to social and economic normality; equally critical is the widespread availability of effective immunization, which could come by the middle of next year. We use this assumption in assessing the economic and credit implications associated with the pandemic (see our research here: As the situation evolves, we will update our assumptions and estimates accordingly.

Related Research



This report does not constitute a rating action.

S&P Global Ratings Australia Pty Ltd holds Australian financial services license number 337565 under the Corporations Act 2001. S&P Global Ratings' credit ratings and related research are not intended for and must not be distributed to any person in Australia other than a wholesale client (as defined in Chapter 7 of the Corporations Act).

Primary Credit Analyst:Sharad Jain, Melbourne + 61 3 9631 2077;
Secondary Contacts:Andy Chang, CFA, FRM, Taipei + 886287225815;
Geeta Chugh, Mumbai + 912233421910;
HongTaik Chung, CFA, Hong Kong + 852 2533 3597;
Gavin J Gunning, Melbourne + 61 3 9631 2092;
Harry Hu, CFA, Hong Kong + 852 2533 3571;
Ryoji Yoshizawa, Tokyo + 81 3 4550 8453;
Research Assistant:Priyal Shah, CFA, Mumbai

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