Rows of Singapore shophouses. Photo by Adrian Jakob via Unsplash.

APAC’s top bankers sound alarm over impact of rising living costs

CEOs are optimistic yet cautious, but tout banks’ resilience.

Top bankers in the Asia Pacific region have expressed a more positive outlook for economic prospects for 2024, according to study by S&P Global Market Intelligence. However, some caution was noted, particularly by Australian bank CEOs over the expected impact of rising living costs.

Bank executives hailed APAC as “resilient” despite the heightened geopolitical risks. Lenders in Singapore and Japan, meanwhile, posted higher earnings thanks to higher interest rates, which boosted their margins.

But higher rates can be a double-edged sword as they have hurt many borrowers and reduced their ability to repay their loans, S&P warned.

Consumer demand has mostly held up, as said by Piyush Gupta, CEO of DBS, Singapore’s biggest bank by assets.

"Consumer demand is generally holding up. Even though the strong dollar means depreciation for other currencies, it does not look like it should cause too much worry," Gupta was quoted saying during the lender’s May 2 post-earnings call, where they discussed DBS’ income rising by 15% during Q1.

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Caution and rising distress
Wee Ee Cheong, CEO of Singapore’s UOB, expressed “cautious optimism” for 2024.

Wee noted sustained tourism activities in Southeast Asia, as well as noted China’s recent moves to reduce reliance from its embattled property sector.

This should generate more trade and foreign direct investment opportunities between China and Southeast Asia, Wee said.

"Looking ahead, 2024 so far has been good. Whilst the operating environment ahead may be uncertain, we will stay vigilant and nimble," Wee said.

Australia’s bankers also expressed caution, noting the high interest rate and inflation environment.

ANZ CEO Shayne Elliot warned of growing financial distress amongst the bank’s customers due to the rising living costs.

"Higher interest rates, taxes, rent and household expenses are hurting many. The number of customers in hardship rose this half and whilst still lower than it has been in the past, it's extremely distressing for each of them,” Elliot noted during the bank’s earnings call on 7 May.

Elliot expects the number of its customers in distress to rise further, as cost of living bites harder and unemployment likely increases.

Westpac CEO Peter King also observed an increase in customers under hardship assistance, which he said reflects the uneven impact of the economic pressures.

“[The] lagged impact of interest rate increases, and inflation will drive a rise in unemployment," King was quoted saying on 6 May.

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Breaking free from negative rates
In Japan, the end of its nearly two decade-long negative interest rate policy has a conflicting two-way effect on banks.

In a 15 May press conference, Sumitomo Mitsui Financial Group’s CEO Toru Nakashima said that whilst this step will be a plus for the bank’s earnings, it might negatively impact deposits.

Japan's three biggest banks are targeting higher earnings in 2024 as higher interest rates boost their margins.

MUFG’s CEO Hironori Kamezawa said that the shift to positive rates will enhance interest margins. Raising the short-term rates by 15 basis points, for example, may contribute up to JPY150b in net interest income, he said in a press conference on 15 May.

Mizuho Financial Group CEO Masahiro Kihara echoed the sentiment in a separate conference. Kihara noted that further rate hikes would benefit lending rates in Japan.

"If the Fed doesn't cut rates, that will make me worry about the [US] economy. Unless the US rates are cut, rates in Asia won't move lower," Kihara was quoted saying by S&P.

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