S&P sees stable credit quality in Asia-Pacific region

MANILA, Philippines - American financial services company Standard & Poor’s (S&P) sees a broadly stable credit quality for the Asia-Pacific region the rest of 2015 despite weakness in China’s stock market.

In its recent report titled “The 2015 Global Credit Outlook for Banks: Mid-Year Update,” S&P said over 80 percent of the region’s 266 financial institutions have stable outlooks, with most of the remaining percentage having a negative outlook or negative credit watch placement.

“The possibility of upward ratings momentum for most financial institutions in Asia-Pacific is limited,” S&P added.

Key credit factors for Asia-Pacific banks this year include domestic economic trends in most jurisdictions supportive of continuing ratings stability; China’s equity market volatility that is manageable in terms of ratings on most financial institutions; and many Asia-Pacific governments remain supportive towards their banking sectors compared with cases in Western Europe and North America.

“We currently view the government as highly supportive toward private-sector systemically important banks in 14 out of 19 banking systems in Asia-Pacific. This situation stands in contrast to the industry trend in Western Europe toward diminishing government support,” the rating agency said.

Moreover, S&P believes there is a low probability of an economic slowdown in most of the region’s banking systems and more positive external economic developments that may contribute to ratings stability in the remaining months of the year.

But S&P clarified the escalation of negative factors such as high private sector debt and property prices in some countries and a potential disorderly market response to US monetary policy tightening can change its views.

Nonetheless, the company said most other global risks appear manageable at current rating levels, noting  direct exposure to Greece is low for the region’s financial institutions.

S&P continues to monitor the impact of the Chinese market on the region’s credit quality.

“We believe that contagion risks from the sharp fall in China’s equity market to the rest of the Chinese financial system remain manageable, at least for the time being,” it said.

S&P added it will also look into declining collateral valuations, anticipated deterioration in Chinese banks’ consumer lending books, and banks’ financing Chinese securities firms’ margin lending businesses.