SINGAPORE: Moody’s Investors Service says the long positive credit cycle that has benefited banks in the Asean region may be on the verge of peaking.

This will in turn introduce new challenges for lenders as pockets of asset-quality risk emerge due to tighter global monetary conditions.

A Moody’s assistant vice president and analyst, Simon Chen said: “Our central scenario is that banking systems in Asean will be broadly resilient to the financial impact of a shift in interest rates.

“But we expect an uptick in non-performing loans (NPLs), particularly in the household segment.”

Chen was speaking on Moody’s just-released report, “Rising Household Leverage Poses Risks to Asean Banks as the Economic Cycle Shifts”.

The Moody’s report shows that household debt has risen significantly in Asean over the past several years, with growth in bank loans to households outpacing loan growth to other borrowers.

Household leverage as a percentage of Gross Domestic Product (GDP) is at historically high levels in Malaysia (A3 positive) (87% at end-2013) and Thailand (Baa1 stable) (82% at end-2013), and close to its five-year high in Singapore (Aaa stable, 75% at end-2013).

Although household debt has also risen significantly in Indonesia (Baa3 stable) and the Philippines (Baa3 positive), the growth in these countries is from a low base.

Chen said Moody’s analysis shows that within the Asean region, the Malaysian and Thai banking systems are the most exposed to increased asset-quality pressure in the household segment, when rates rise. – Bernama