Moody’s Investors Services just release a research report on the credit risks and trends in 2019 for financial institutions in emerging markets 2019 outlook.
According to its summary, slower global growth, rising interest rates, trade protectionism and geopolitical tensions will pose risks for financial institutions in emerging markets throughout Asia, Latin America, Europe, the Middle East and Africa in 2019. Even so, our outlook for banks, insurance companies and asset managers in these regions is broadly stable and reflects a range of buffers that will help these institutions navigate through a more challenging operating environment. Positive credit attributes include resilient balance sheets, steady domestic economic growth and supportive public policies.
In all emerging markets, risks will be higher for issuers that rely heavily on foreign-currency financing. This report is an updated version of our outlooks for financial
institutions that were originally included in a broader 2019 global outlook on emerging markets published in November.
Regarding to Financial institutions in Asia-Pacific regions, Moody’s confirmed that, stable outlook for banks and insurance despite more difficult operating environment.
Problem and restructured loan ratios remain high in Bangladesh, India, Mongolia, Indonesia and Vietnam and higher domestic interest rates and weaker regional trade might lead some overleveraged corporate borrowers to default on their debt. Despite these growing challenges, emerging market banks in Asia have good solvency and liquidity buffers, which should balance the stress on their credit quality. Bank profitability is the first line of defense and totaled 1% (return on assets) in 2017. Loan loss reserves typically cover around 100% of problem assets. Lastly, the capital buffers are good at around 11% in terms of tangible common equityto-risk weighted assets. Funding and liquidity are also good at Asian banks because they rely mostly on domestic deposits, with a low share of market funding.
In Vietnam, banks have significantly cleaned up their books from legacy problem assets and are set to post higher profit in 2019.
Emerging market banks in Asia will continue to invest in digitalisation and IT transformation to enhance customer experience, reduce client acquisition costs and protect their market positions from new financial technology (fintech) entrants, particularly in retail financial services.
Read full report here