Moody’s has changed the industry outlooks of the following banking systems from negative to stable: Australia, China, Hong Kong, Indonesia, India, Korea, Malaysia, New Zealand, the Philippines, Singapore, Taiwan, and Thailand.
The industry outlooks of the banking systems in Cambodia, Japan, Mongolia and Vietnam remain negative.
Outlooks for industries represent our view on the likely future direction of credit conditions in those industries. They do not represent our projections of rating upgrades versus downgrades.
Three factors underpin the generally better outlook across most of Asia’s banking systems.
- Improving local economic prospects and stabilizing global conditions
- Improving access to international debt and money markets
- Banks are still adequately resilient to cope with remaining macro and micro-economic risks, having suffered only limited damage during the past 30 months of the financial crisis
Those banking systems which continue to carry negative industry outlooks, are also exhibiting some signs of stability, but remain more vulnerable to shocks. Typically these systems were weaker going into the crisis, may have suffered more during the crisis and/or operate in economies experiencing slower recoveries.
Underlying these generally improved outlooks is Moody’s opinion1 that the most likely scenario is that the global recovery will be a sluggish one characterized by growth returning to trend growth rates. Nevertheless, we expect that NPLs will remain above normal throughout much of the region for at least the next 12-18 months. The road to recovery will not be without bumps.
AUSTRALIA
Banking Industry Outlook - Stable
We have changed the Australian banking system outlook to stable as industry conditions are stabilising on the back of an economic outlook that is far more favourable than predicted only six months ago.
Strong demand for commodities from China and an effective government stimulus programme have been important drivers of this outcome. Australia avoided recession in 2009 and the consensus GDP growth outlook for 2010 is in the order of 2.5% to 3.0%. Unemployment is still well contained - at 5.7% in November 2009 - and looks like it has peaked well below the 8.5% originally forecast by the government in mid 2009.
Recent bank disclosures suggest that credit costs are flattening off. Corporate sector leverage is generally low. The commercial real estate sector has successfully raised equity during the crisis and supply/demand conditions remain generally acceptable. While consumer leverage remains high, it has reduced over the crisis period. Housing conditions have remained strong as the supply shortage worsens on continued net migration and limited housing starts. There has been a gain in house prices over the crisis period.
Furthermore, the crisis has supported more sustainable competition by forcing the exit of marginal, price led players. Risk-adjusted returns have improved sharply and have effectively offset the increased funding costs of the crisis period, including retail deposits. Wholesale market conditions continue to improve and investor demand for domestic RMBS is clearly starting to return.
CAMBODIA
Banking Industry Outlook - Negative
The outlook for the Cambodian banking sector remains negative. The repercussions of the global economic crisis have hampered the country’s garment exports to developed countries, in addition to weakening tourism and construction. The significant impact on the country’s real economy has dragged the banks’ asset quality and thus their earnings since 2Q2009. The system’s NPL ratio rose to around 6% in 2009, from 3.7% in 2008.
Although in 2010 the economy is likely to return to growth from recession, the country’s high reliance on external developments makes its recovery more vulnerable than that of most Asian countries.
Moreover, we expect the banking sector will be beleaguered by a high amount of NPLs for some time, given the excessive credit growth in the several years before the crisis and before the property market bubble burst.
2010, Sep 03 
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