2016 outlook for ASEAN banking systems stable, says S&P

SINGAPORE – Ratings agency Standard & Poor’s expects bank loan growth in 2016 to reduce in most ASEAN economies due to a slowdown in the regional economies. "Loan growth in Malaysia could moderate to 6%-8% in 2016, from a five-year average of 10%, amid unfolding external uncertainties about the pace of US Fed rate normalisation and the economic rebalancing in China," the agency says.

“Indonesia's banking sector will continue to face difficult operating conditions in 2016, marked by slower growth and higher credit stress. We expect the Indonesian banks' reported NPLs to increase to 3%-4% of total system loans in 2016, from 2.9% in February 2016.”

“The asset quality of banks in Singapore will be vulnerable to further deterioration in external conditions. The quality of overseas loans of these banks, particularly to emerging markets such as Indonesia and India, has continued to weaken.”

S&P says it believes nonperforming loans (NPLs) of ASEAN banks will continue to rise in 2016. “However, our base case assumes a gradual deterioration, rather than a sharp spike in delinquencies.”

It says banks in ASEAN countries have sufficient buffers to remain resilient to external macro-economic headwinds. The outlook for the region's banking sector is therefore stable

"The fair-to-satisfactory profitability and generally sound capitalisation of ASEAN banks should mitigate an erosion in asset quality in 2016," said S&P Global Ratings credit analyst Ivan Tan.

"Many of these banks are systemically important and benefit from a high likelihood of Government support."  www.standardandpoors.com (ATI).