Potentially higher interest rates, as well as volatile domestic currencies, bond markets, and property prices, would make financing conditions more difficult for Asia-Pacific financial institutions in 2019. That's according to S&P Global Ratings in a report published today, titled "Asia-Pacific Financial Institutions Monitor 1Q 2019: A More Difficult Year Ahead".
"High debt levels and lofty asset prices have evolved during what has been an extraordinarily long economic and credit cycle across much of Asia-Pacific," said S&P Global Ratings' credit analyst Gavin Gunning. "These elevated risks set the scene for a potential deterioration in Asia-Pacific bank credit quality, over the short to medium term."
Bank ratings in the region remained relatively stable over the course of 2018 and our base case is that this trend will likely continue in 2019 despite credit conditions becoming more difficult. Last year, only 7.0 per cent of our pool of rated banks in Asia-Pacific were either upgraded or downgraded. As of Dec. 31, 2018, the median rating across the portfolio of over 200 rated banks remained unchanged from a year ago at 'A-', with about 87 per cent of our bank ratings at 'BBB-' or higher.
Mr. Gunning added: "A significant and abrupt credit cycle downturn would likely result in negative ratings momentum for some Asia-Pacific banks. This is despite our expectation that most banks can contend with a moderate and gradual negative turn in the credit cycle at current rating levels."
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