Tough year ahead for Asian banks as recession spreads, says Fitch Ratings

January 22, 2009: In a recently published comment, "Banks in Asia (Excluding Japan): Outlook for 2009", Fitch Ratings assesses the outlook for Asian economies and banking sectors in 2009.

Fitch notes that over the past year economic growth forecasts for Asia have fallen steadily under the impact of the global slowdown. This has led to lower growth than Fitch initially expected for Asia in 2008 and a likely recession for several economies this year.

For 2009 Fitch expects global GDP to grow at just 0.9% with declines in the US (-1.2%), the Euro area (-0.7%) and Japan (-1.7%). The agency expects a modest recovery in 2010 though with growth for these economies mostly in the region of 1%.

Among the large Asian economies, Fitch expects China's growth to slow to 6% in 2009 - a level which if sustained would probably start to give rise to significant bad debt problems for Chinese banks. However, Fitch expects the slowdown to be relatively short-lived and growth to recover to 8.5% in 2010 as external demand improves and domestic stimulus measures take effect. Given this outlook Fitch expects the negative effects on Chinese banks in terms of higher NPLs and bad debt charges to be appreciable, but for most banks, still manageable. Their emergence may also be somewhat delayed by the time it takes loans to reach non-performing status in China, as discussed in a recent Fitch comment (for more information, please refer to "Asset Quality Under Pressure As Credit Cycle Turns" published on 9 January 2009).

Fitch's forecast for India is 5% growth in 2009 and 6.3% for 2010 but the agency sees more downside risk for these forecasts than for China given the more limited policy options available to the Indian government. For the rest of Asia in 2009 Fitch expects to see positive, but more subdued GDP growth in Indonesia (4.3%), Vietnam (3.0%), Philippines (2.5%) and Malaysia (1.5%). Fitch expects to see negative growth in Korea (-2.4%), Taiwan (-2.1%), Thailand (-1.1%), Hong Kong (-1.2%) and Singapore (-1.0% though this may be further lowered).

In view of this grim economic outlook Fitch expects to see lower revenues and higher NPLs and bad debt charges across the region, resulting in reduced but for most systems still positive levels of net profitability. Exceptions include Taiwan, where even in a good year profit margins are thin, and in a difficult year a net loss for the system is likely. Korean banks could also fall into the red due to sizeable credit losses following their lending boom of recent years.

Fitch expects these trends to give rise to the need for additional capital both to offset the effect of credit losses and to boost capital levels to the new higher norms that are becoming the standard in the wake of the credit crisis.

In view of the more challenging economic conditions, the balance of Asian banks' rating Outlooks has shifted decisively toward Negative over the past year, while the Negative Outlooks for some sovereigns, notably Thailand and Korea have led to similar Outlooks being assigned to banks in these countries. Despite the short-term gloom, Fitch expects to see a modest recovery in 2010 with all Asia-Pacific economies expected to achieve positive growth, albeit at a subdued level.

(This is press release of Fitch Ratings)


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