Gov’t support keeps APAC banks stable

Each market has their own problems, such as floods and weak property demand.

The promise of government support should the need arise will serve as a buffer for Asia Pacific financial institutions as they face geopolitical tensions and possible economic woes, according to S&P Global Ratings.

About 91% of banks rated by the agency have a ‘stable outlook’, supported by the expectation that they will get strong government backing should the need arise.

This is especially likely for systemically important private commercial banks.

"Banks are balancing a range of risks of varying intensity, including potential spillover from tensions in the Middle East, property market woes in numerous jurisdictions, and the overarching risk of an economic hard landing,” said Gavin Gunning, S&P Global Ratings credit analyst.

“Our base case, however, is that most banks will contend with these risks into the new year,” Gunning added.

The fourth quarter outlook for banks varies for each country and market, however. Vietnamese banks, for example, will see a strain in their profitability as a result of flood-related damage from the recent typhoon.

Hong Kong banks face high vacancy rates in office space, and will contend with the spillover of weak sentiment from China's property downturn.

Despite ongoing property woes, the Chinese government’s latest stimulus measures could boost credit growth and even the GDP, S&P said.

In India, financial companies (fincos) are treading cautiously, the ratings agency said.

“We believe rated and unrated fincos have strong capital levels to support high loan growth,” S&P said.

On a separate report, McKinsey & Co. said that banks globally will likely struggle to create value, and with declining interest rates expected to compress margins next year.