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Industry outlooks on most banking systems in Asia Pacific have turned negative, says Moody's

December 11, 2008: Moody's Investors Service has changed the industry outlook for banks in Australia, Hong Kong, Taiwan, the Philippines, Mongolia and Cambodia to negative from stable, based on Moody's revised scenarios for global macroeconomic trends.

Furthermore, in view of these changes, the industry outlooks on most banking systems in Asia Pacific have also turned negative.

"While the direct impact of the current global financial crisis on banks in Asia Pacific has been comparatively limited, these changes in the industry outlook reflect expectations that gathering economic headwinds from a global recession will increasingly test the resilience and strength of regional banking industries," says Jerry Chien, Managing Director for Moody's Financial Institutions Group in Asia Pacific.

Chien was speaking on the release of a new Moody's report -- entitled, Asian Banking System Outlook: An Update -- and which was authored by senior banking analysts in the region. Specifically, the report looks at the banking systems in Australia, Hong Kong, Taiwan, the Philippines, Mongolia and Cambodia.

"In terms of the macroeconomic outlook, , Moody's central scenario for 2009-2010 has shifted to one of 'Global Healing,' and in which the process of global de-leveraging and tight financial conditions depress emerging markets to below-trend growth and leads to economic stagnation," says Chien. "There is also a downside risk that this scenario could shift to a more negative outcome of 'Disintegration,' which would entail a collapse in global trade, commodity prices and international financial flows."

This shift in Moody's central macroeconomic scenario points to a more challenging operating environment for banks over the next 12-18 months with the most significant threats to their creditworthiness moving from high inflation to a pronounced deceleration in growth and trade, the new Moody's report says.

Under such a scenario, banks in most systems are now expected to experience moderate deterioration in their asset quality, tighter margins and subsequently less favorable earnings through 2010, the report says.

At the same time, the rating outlook remains generally stable with a handful positive, reflecting Moody's confidence that banks within the region will perform at least as well through these hard economic times as their current ratings would suggest.

Moreover, prior to the onset of the crisis, Asian banks had raised substantial amounts of capital, while accumulated savings from their healthy earnings have provided an additional cushion, the report says.

These buffers remain largely in place as the banks' relatively low exposures to structured credit products led to, if not limited, the manageable depletion of capital over the past year.

(This is press release of Moody's Investors Service)


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