Moody's poll cites asset bubbles, not market volatility, as top credit risk for Asian banks

Moody's Investors Service says that its recent investor poll on Asian banks has shown that the unwinding of asset bubbles is the top macroeconomic threat to Asian banks in the coming 12 months, followed by a growth slowdown in China.

"We largely agree that asset bubbles -- particularly in real estate -- are an important but manageable source of credit risk for the banks in 2015 and 2016," says Eugene Tarzimanov, a Moody's Vice President and Senior Credit Officer.

Property prices have appreciated particularly rapidly in Hong Kong (Aa1 stable), India (Baa3 positive), Malaysia (A3 positive) and Singapore (Aaa stable) since the 2008-09 global financial crisis.

"We note that banking regulators in Hong Kong, Malaysia and Singapore have taken various steps to cool the property markets, which should decrease the risks for the banks," adds Tarzimanov.

Tarzimanov was speaking on Moody's recently released sector-in-depth report on Asian Banks entitled, "Moody's Poll Cites Asset Bubbles, Not Market Volatility, As Top Credit Risk."

The report discusses results from a real-time poll on a combined audience of around 230 professional market practitioners attending Moody's annual banking conferences held in Hong Kong and Singapore during July 2015.

Within Asia as a whole, poll respondents highlighted China and Indonesia as the two economies that would face the biggest banking system and economic challenges in the coming 12 months.

"Our take on Chinese banks is that they will maintain stable credit profiles in 2015 and 2016, despite economic rebalancing in the country and some deterioration in asset quality," says Tarzimanov.

Moody's stable outlook on the Indonesian banking system reflects the rating agency's expectation that the country's banks will continue to report strong financial fundamentals, including high profitability and capital levels, despite some pressure on asset quality.

While respondents in both Hong Kong and Singapore believed that Indonesia is most vulnerable to US rate hikes, there is also a "home bias" in that they see their respective home economies as being the next most exposed.

Moody's also considers that Indonesia is moderately vulnerable to international capital volatility once US interest rates start to rise.

The country is running a current account deficit that Moody's expects will reach 2.9% of GDP in 2015. Moreover, around 45% of government debt is denominated in foreign currencies.