Big borrower default could wipe out a year of SEA bank earnings: S&P

Brunei, the Philippines, and Thailand are the most exposed to loan concertation risk.

South and Southeast Asian banks face concentration risks in the event that any titan company crashes, with Brunei and the Philippines most exposed to damage from large defaults, warned S&P Global Ratings.

“Our scenario analysis, focused on loan concentration at banks in the region, found Brunei and the Philippines are at highest risk. This is because of high single-name concentration in those countries,” said Geeta Chugh, a credit analyst at S&P Global Ratings based in Mumbai.

Banks in these countries, along with Thailand, are the most exposed to loan concentration risk, according to Chugh.

In these countries, banks could lose more than full-year's earnings before tax because of high concentration and in some cases due to relatively weak earnings, Chugh warned.

“Our analysis of about 5,000 corporations in SSEA indicates that companies in Bangladesh and Vietnam are the most vulnerable,” Chugh said.

The stress test involves the banks’ largest borrower defaulting, with the assumption that these loans are unsecured or value recovered is very low.

“That said, extreme stress could wipe out the full-year earnings of some banks in Malaysia, India, and Indonesia, too,” she added.

Major corporate defaults are expected to trigger domino effects. Their halted payments result in suppliers losing cash flow required to service their own debt, which in turns leads to a secondary wave of defaults occurring, S&P said.