Indian banks most at risk in Southeast Asia

Many banks in India are undercapitalised.

In July 2017, Moody's held its annual banking conferences in Hong Kong and Singapore, during which real-time polls were conducted on a combined audience of around 210 market participants on some of the industry's most pressing credit issues. 

According to Moody's, near 70% of the respondents in Hong Kong picked India's banking system as the most vulnerable among seven systems in South and Southeast Asia. In Singapore, 44% of the respondents chose India and a quarter of the votes went to Indonesia. Some are worried about Malaysian and Vietnamese banks, but they represent around 10% of the audience in either Hong Kong or Singapore.

Here's more from Moody's:

The above views on Indian banks are in line with our latest assessment that many banks in that country are undercapitalised and continue to lack sufficient loan-loss provisions. Moreover, the government has appeared reluctant to increase capital injections into the public sector banks, despite the limited ability of these banks to access equity markets for much-needed capital.

As a result, we revised the outlook on several Indian banks to stable or negative from positive on 24 July, signaling a lowering in potential government support under our JDA model, and/or weaknesses in solvency metrics (links to our first and second report).

Contrary to investor concerns about Indonesian banks evident in the Singapore poll result, we currently have a positive outlook for country’s banking system (link for report). We believe Indonesian banks will see improvements in their operating environment and asset quality amid improving sovereign creditworthiness, a positive for the banks' deposit and senior debt ratings.