Improved global trade and a strengthening Chinese economy have helped relax cyclical pressures on Asia-Pacific financial systems, but high private-sector debt is still a risk to the system’s stability and bank performance for much of the region.
Rising demand in China, recovering commodity prices and relatively stable currency and asset prices have helped support bank performance in the Asia-Pacific region, according to a new report from Fitch Ratings. The ratings agency’s outlook is negative for 10 of the region’s 17 rated banking systems, but that’s down from 13 at the beginning of the year. “Nevertheless, the build-up in private-sector debt and the rise in property prices over the last decade of ultra-loose global monetary policy have created financial risks that could still be tested by US rate hikes,” Fitch analysts said.
Corporate debt has risen sharply in Hong Kong and China, and a sharp downturn in the economy poses a key risk for the banking sector in China. Meanwhile, rating changes for banks in China and India could occur from asset-quality issues, Fitch said. Risks are highest in state banks in India, while in China, risks are concentrated at second- and third-tier banks, which have less capital and larger exposure to shadow banking and higher reliance on wholesale funding.
– Nicholas Stern, senior editor