APAC banks to have steady financial performance in 2023: Fitch

Sri Lanka will deteriorate; Singapore’s profits may rise to higher than pre-pandemic.

APAC banking systems are expected to report steady financial performance in 2023, or only a mild variance compared to 2022, according to the banking sector outlook report published by Fitch Ratings.

Robust economic growth is expected in India, Southeast Asia, and China despite the weaker external environment. This in turn will support loan expansion, according to the ratings agency, with benefits to net revenue, which will largely offset weakening asset quality.

Banking systems in APAC developing markets will post a more mixed financial performance, Fitch said, noting that key metrics in most will be steady. 

“We forecast all seven systems’ average common equity Tier 1 (CET1) ratios, a key metric for loss absorption buffers, to remain at broadly similar levels to 2022. Moreover, we generally expect APAC DM banking systems to weather the deteriorating global economic landscape in 2023 better than those in other regions,” the report stated.

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Two markets were listed as exceptions: Sri Lanka, and Singapore.

Sri Lanka is noted to be deteriorating with a challenging operating environment, following the sovereign’s default on its foreign-currency obligations in May. 

“Sri Lankan banks’ financial profile vulnerability will be the highest in the region. By contrast,” Fitch warned.

Meanwhile, Singapore has an “improving outlook.” Fitch expects the Lion City’s profitability metrics to strengthen further to above pre-pandemic levels.