BANKING OUTLOOK: APAC APAC banking industry outlook by market

Hong Kong: “Stronger net interest margins should help offset the weakness in fee income from wealth management and bancassurance activity. Credit cost is expected to decline as incremental provisions from the China property sector stay low.” (Shinoy Varghese, S&P primary credit analyst, Hong Kong)

India: “We project that the banking sector’s weak loans will decline to 4.5%-5% of gross loans by March 31, 2024. Likewise, we forecast the credit costs to normalise to 1.2% for fiscal 2023 and stabilise at about 1.1%-1.2% for the next couple of years. This makes credit costs comparable to those of other emerging markets and India’s 15-year average. The small and midsize enterprise sector and low-income households are vulnerable to rising interest rates and high inflation. But, in our base case of moderate interest rate hikes, we view these risks as limited.” (Deepali V Seth Chhabria, S&P primary credit analyst, Mumbai)

Indonesia: “Indonesia banks are enjoying a revival of loan growth and profitability. Elevated credit costs seen during COVID are receding. We expect credit losses for Indonesian banks to gradually decline to 200 basis points (bps) in 2022 and 180 bps in 2023, from their peak of more than 270 bps in 2020. We also expect the sector’s profitability to improve to the pre-pandemic 2.4% in 2023. Higher interest margins and lower credit costs will support this. The banking system will likely rank among the most profitable in the region by a considerable margin.” (Ivan Tan, S&P primary credit analyst, Singapore)

Taiwan: “We expect higher credit costs as loan moratoriums end but asset quality is satisfactory. [Banks’] solid capitalisation will provide sufficient cushion to absorb higher credit losses. We anticipate further rate rises in the U.S. and Taiwan in 2023, which will continue to lift banks’ net interest margin.” (Yuhan Lan, S&P primary credit analyst, Taipei)