KUALA LUMPUR: Indonesia, Malaysia and Thailand are thee out of the six Asean country banking sectors which are on Fitch Ratings's negative sector outlooks due to the challenging operating environment and high risks.The international ratings agency said on Thursday that Singapore is on a stable sector outlook, but downside risks have also risen there over the past year.“Indonesia and Malaysia have been the Asean economies most exposed to the negative effects of lower commodity prices. Both economies have recovered from the terms-of-trade shock, but are still growing at a slower rate than before the commodity price crash.“In Thailand, GDP growth has been held back by rapid population ageing and declining export competitiveness. Prolonged economic weakness in any of these economies could cause a reassessment of our bank ratings,” it said.Fitch said nevertheless, the major banks in all of these economies look resilient and remain on a stable rating outlook, owing to satisfactory profitability and strong loss-absorption capacity.However, it pointed out that buffers are much thinner in Vietnam, where banks have the lowest ratings among those it has assessed in Asean.Fitch said Vietnam's banks are saddled with legacy problem assets and also face structural problems. The economy has been performing strongly over the past two years, which partly explains our revision of the sector outlook from negative to stable in late 2015.“But poor transparency and regulatory forbearance makes it difficult to ascertain the true balance-sheet strength of Vietnamese banks. Household debt has risen particularly strongly in Malaysia, Thailand and Singapore.“These risks have been manageable, but could become a source of larger asset-quality problems with a rise in unemployment or interest rates,” it said, adding that it expects the US Federal Reserve to hike rates again by year-end, which could close the window for further easing.Also another point is Asean's close trade and financial linkages with China pose another potential risk to the banks.While Fitch does not expect a hard landing in China's economy, although the heavy reliance on credit expansion to meet GDP growth targets is adding to medium-term vulnerabilities.

Source: The Star October 06, 2016 03:27 UTC