APAC banks brace for slowdown as GDP growth peaks

Loan growth will slide across the region.

Banks in Asia Pacific should brace for a more challenging year in 2019 as macro uncertainties deepen and growth becomes hard to come by, according to Moody’s Investors Service.

“[G}DP growth in APAC has peaked and will moderate, and credit expansion will continue to slow down, with the trade conflict between China and the US posing a risk for the banks,” the firm said in a report.

Also read: Trade tensions will not spare even the most mature APAC banks

Private sector leverage also remains high across many APAC economies, stoking risk of asset quality deterioration as interest rates rise.

Banks should also be wary of property-related risks with Moody’s identifying Australia, New Zealand, Korea and Malaysia facing the greatest risk in the form of real estate investment purposes.

Also read: APAC banks grapple with growing property risks: Fitch

Nonetheless, APAC banks’ creditworthiness, capital, provisions and profit will remain broadly stable in 2019 as economic fundamentals hold steady and banks enjoy strong credit buffers, Eugene Tarzimanov, Moody’s vice president and senior credit officer said in a statement.

"In addition, recent developments on bank resolution in APAC cement our view that government support for the banks will stay strong, and that senior creditors will not be required to pay for bank rescues; although Hong Kong remains an exception," adds Tarzimanov.

Banks across the region are also poised to remain active issuers of green bonds although growth in green financing has slowed down slightly in 2018.