Recovery still not in sight for ASEAN banks

Operational green shoots remain vulnerable as borders are still closed.

ASEAN banks continued to see negative earnings momentum in Q2, with Indonesia, the Philippines and Thailand faring worse as asset quality risks remain high, according to a Maybank Kim Eng report.

There may be dislocations between real asset quality and non-performing loan (NPL) recognition due to various forms of loan moratoriums and support measures, analysts said. In addition, operational green shoots are at risk as borders remain largely closed and domestic lockdowns resulting in disruptions.

Between Q4 2019 and Q2 2020, gross NPLs increased substantially between 23-60bps in Indonesia, the Philippines and Thailand, but this may not yet reflect the full impact due to restrictions in place.

The risks of more credit charges are still elevated for several key markets, the report noted, as there were earnings cuts to almost a quarter of banks in the region. Analysts expect this trend to continue in the near-term.

The downtrend in net interest income across the region picked up pace in Q2, triggered by dwindling net interest margins, with Malaysia, Indonesia, Thailand and Singapore seeing notable falls after policy rate cuts. Non-interest income performance was mixed with the Philippines and Indonesia showing recovery.

As moratoriums loosen up come Q3, more asset quality pressures will bubble up. Banks with more domestic focus will face higher operational pitfalls, especially if economic activities fail to pick up pace, the report concluded.