Rising household debt could undermine credit quality of Asia's banks: S&P

SINGAPORE - Asia's increasing household leverage, mainly from rising mortgages, could be risky for Asian banks' creditworthiness, according to ratings agency Standard & Poor's. It published a report today evaluating the  asset quality of banks in six Asian economies -  Malaysia, Thailand, Singapore, Korea, Hong Kong, and China.

The report notes that while banks in Asia have been operating under favuorable credit conditions resulting from healthy economic growth for a few years now, a structural weakness appears to be emerging in some economies. "Rising household debt fuelled by rapid loan growth and easy monetary conditions could weaken the credit quality of banks in Asia," said S&P credit analyst Ivan Tan. "Potential asset bubbles and imbalances are building up in some countries, and could put the banks at risk."
Malaysia, Thailand, Singapore, and Korea have the highest household debt in Asia. In addition, high property prices in Hong Kong and China are leading to poor housing affordability there, which can undermine the credit quality of mortgages. According to the report, banks in Malaysia and Thailand are the most vulnerable to a deterioration in the household segment.  www.standardandpoors.com (ATI).