According to Tarzimanov, 23% of ASEAN banks now hold a negative outlook compared to 19% in 2019. However, he noted, a majority of bank ratings are well positioned for now and there were no bank downgrades in ASEAN in H1 2020. The region’s banks mostly have investment-grade ratings, with Singapore and Malaysia home to the banks with the highest ratings, he added.
The region’s banks are also well placed in terms of reported capital, funding and liquidity, Tarzimanov said, noting that the decision of regulators in Thailand and Vietnam to restrict bank dividends would be a credit-positive for banks. Further, he observed, the region’s largest banks, thanks to their safe-haven status, are expected to continue to benefit from the inflow of deposits, which can be used to fully fund new loans as is the practice among banks in all covered systems.
“While a majority of banks are adequately capitalised and liquid, and we expect this to continue in 2020-2021, downgrades are more likely for banks that suffer material capital erosion and lack capabilities to rebuild their capital,” he said. “The outlook is obviously negative but it doesn’t mean that a lot of credit ratings will be under pressure.”
CALL TO ACTION
There are other positive signs that a nascent recovery is in the making for ASEAN banks. For instance, debt issuance spreads, which had spiked earlier in the year and turned banks away from the market, have narrowed considerably since then, leading to a pick-up in issuances by ASEAN Sovereigns and banks, noted Alfonso Luis Maputol, Head of South & Southeast Asia Debt Capital Markets, ANZ.
“That’s an early indicator that a majority of ASEAN banks do see the region coming out much stronger post-COVID-19 and have started to buffer liquidity amid an expectation of credit growth,” he said.