Moody's caution on banks' asset risks rise
However, continued policy support and strong loss-absorbing buffers mitigate the negative impact; Credit strength to stay intact
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Asset risks for banks will rise in most parts of ASEAN (the Association of Southeast Asian Nations) and India as the region battles new waves of coronavirus infections amid low vaccination rates, according to a report by Moody's Investors Service.
However, continued policy support and strong loss-absorbing buffers mitigate the negative impact for banks in ASEAN and India, coronavirus outbreaks triggering strict containment steps will impede economic recovery and erode borrowers' debt repayment capacity, increasing their asset risks, said the report.
It further said that banks' strong loss-absorbing buffers, policy support and the virus impact focused on a few segments will keep their credit strength intact.
"Banks in Thailand (Baa1 stable), the Philippines (Baa2 stable), and Indonesia (Baa2 stable) are particularly vulnerable as their economies struggle with elevated numbers of virus cases, spiking uncertainties regarding their economies reopening. Yet, policy support for borrowers and the concentration of the impact on a few economic segments will limit the deterioration in banks' overall asset quality," said Rebecca Tan, a Moody's Vice President and Senior Analyst.
