APAC emerging banks’ profits to benefit from higher rates in 2024

Expect some minor asset-quality deterioration, however.

Majority of emerging market banking systems in Asia Pacific will report better financial results in 2024, according to Fitch Ratings.

An expected robust economic growth during the year will help drum up demand for loans, the ratings agency said in a report.

The one exception to this is China, whose outlook is deteriorating. The government has enacted policy measures to support its economy, which is expected to weigh on system growth and profitability in 2024, Fitch noted.

Negative impact, however, will be felt less by the domestic systemically important banks, who Fitch rates.

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Despite the overall positive outlook for financial results, performance will still vary per market in APAC.

Elevated interest rates and near-cyclical-high net interest margins (NIM) will lend support to profits for 2024. In return, there will be minor asset-quality deterioration, Fitch said.

Notably, Indonesia and Vietnam are facing improving bank operating environments. India also has a more positive outlook compared to 2023. Elsewhere, outlooks are stable, according to Fitch.

“Banks with the largest franchises and/or lowest-cost deposit bases should be most resilient to interest rates remaining high. We expect only modest loan deterioration – given the solid macroeconomic backdrop and some remaining forbearance – whilst existing loan provisioning should limit any rise in credit costs,” Fitch said in its report. 

Reported non-performing loan (NPL) ratios will also benefit from the expected high loan growth in the more populous markets and limited upside to policy rates, it added.