Compared with European banks and Americans with a depressing financial performance during the crisis, Asian banks has been enjoying a brilliant growing time, with a better performance in income statement and with rapidly expanding in asset and business.
However, Standard & Poor´s reported in May 28th that in 2013 main Asia-pacific banks would face narrowing interest spreads while an increasing risk due to a lower interest rate and easing monetary policy of more countries within region. Therefore, the profit margin in Asia-pacific banking industry will possibly reduce.
In the report S & P conclude 3 reasons for the result of reducing profit margin among Asia-pacific banking industry.
- Deteriorating Credit Quality
The market bubble in real estate market and the over-borrowing situation among companies deteriorate the credit quality of Asia-pacific banks. Volatile property prices pose various risks across the region, like Hong Kong, Singapore, China, Australia, New Zealand, Korea, and Malaysia.
Corporate excessive debt is one of the most important uncertainties faced by banks inside the region. S & P points out that Hong Kong banks are very typical. The economic imbalance following the over-pricing in real estate could be considered as the cause of an over-concentrated in mortgage related loan of banks. S&P believes it will be a critical risk point for Hong Kong banks in the coming years, however, with the support from China mainland, Hong Kong credit condition will remain stable and the risk will be mitigated.
- Narrowing interest spreads due to Japan Abenomics
S & P believes that Abenomic leads the devaluation of Japanese ¨yen¨, which brings a lot of pressure to other economies in the region, especially South Korea, China Taiwan region, etc.
For example, due to Japan´s excessive easing monetary policy, the export in South Korea has been facing much more pressure.
On one hand, this situation further narrows the interest rate spreads between banks, which is the main income of South Korean banks.
On the other hand, the liabilities of export-depending companies will negatively influence the asset quality of South Korean banks.
Besides, the competitive environment in South Korean banking industry is fierce, while the applicant-friendly loan policy currently makes banks lose more power in front of big company clients.
- The Slow Growth of Chinese Banks
In 2012 Chinese banks has resulted in a slower profit growth due to various factors, such as the slowdown of China´s macro economy, the acceleration of reform on interest rate liberalization and tightened regulatory constraints on capital, etc. The Chinese banking industry will face a similar fate in 2013.
S & P predicts that the major Chinese banks will have an ROA reducing from 0.1%-0.2% to 1%-1.1%. Besides, influenced by the slowdown of Chinese macro economy, asset quality of Chinese banks could deteriorate because of a weak growth in banking-supported export sector and higher debts of financing platform of local governments. However, S & P emphasizes that the deterioration of bad debts will not worsen in a short time but the interest spread will significantly narrow in Chinese banking industry with a high possibility.
Over all, S & P believes although in 2013 asset quality and profitability of Asia-pacific banks is less than those in last year, stable funding and liquidity, adequate capitalization, and government support continue to underpin ratings on Asia-Pacific banks. The expectation of 40 Asia-pacific banks is 85% ¨stable¨, while half of Japanese banks and all the India banks still remain ¨negative¨.
Edited by Simeng Zhang
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