BANDAR SERI BEGAWAM – ASEAN banks will remain resilient even if rising interest rates and increasing houseld debt are threatening the quality of the region’s banking assets.

In its latest report titled ASEAN Banks Will Remain Resilient to Rising Risks released yesterday, global credit ratings agency Standard and Poor’s (S&P) said the asset quality of ASEAN banks can weaken over the next 12-18 months due to the buildup of risk.

S&P said such risk stemmed from higher property prices, mounting household debt, tight liquidity and rising interest rates.

The ratings agency said the “healthy recurring profits and adequate capital cushions” of ASEAN banks combined with strong government support will buffer against downside risks.

“The accumulation of capital and provisioning buffers should be sufficient to offset these headwinds and continue to underpin the ratings on the banks,” S&P said in its report.

S&P said ASEAN remains one of the fastest-growing regions globally with the overall macroeconomic environment supportive of the region’s banking sector stability.

The report, which focuses on Singapore, Malaysia, Indonesia, Thailand, Vietnam and the Philippines, said countries with the highest household debt poses a risk to the credit quality of ASEAN banks.

Malaysia, Thailand and Singapore have the highest household debt in ASEAN, which is associated with rapid loan growth and the easing of monetary policiess.

S&P said the rapid increase in household debt has outpaced income growth which leads to repayment difficulties at the turn of the credit cycle.

For Thailand, the rating agency said the country’s household debt is caused by a “credit binge” in 2010-2012 on top of an already high household leverage and aggressive underwriting.

This has increased the country’s non-performing loans (NPLs) ratio from 2.2 per cent as of December 2013 to 2.6 per cent in March 2015. However, the country’s central bank has “significant reserves” as buffer against these downside risks, said S&P.

For Indonesia, S&P said the net interest margins of banks will remain squeezed in the same time period as regulators cap deposit rates.

Philippine banks are expected to have limited profitability with the country’s banking industry average return on assets to decline to about 1.3 per cent in 2015. –Leo KasimThe Brunei Times/Asia News Network

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