Indian, Chinese banks to remain under pressure in 2017

The Dollar Business Bureau

Indian and Chinese banks will continue to remain under pressure in 2017 due to escalating bad loans, even with earnings and capital buffers are in a situation to withstand any serious threat, Fitch said in a report. 

"Our 2017 outlook on more than three-quarters of the banks in the region is negative. Though earnings and capital buffers are generally strong enough to withstand these trends, we expect viability ratings to remain under pressure in China and India," the report said. 

Referring to the 2017 outlook on Asia-Pacific banks, the credit rating agency said, "Most of Asia-Pacific's banks are facing a cyclical deterioration in asset quality in 2017, as a challenging economic environment continues to put pressure on borrowers. 

Fitch noted that the private sector debts- both corporate as well as household – has been on a rise in a number of APAC economies since 2009, creating market vulnerabilities which will continue to be tested next year.

"We expect economic growth in emerging market Asia to moderate further to 6.4% in 2017, which is still faster than the other regions but down from an average of 7.8% in 2010-14," the report said. 

Low commodity prices still remains a worrying factor. It will create financial problems in the resources sector, resulting in more troubles for banks. The banks face one more challenge, and that is to implement low or negative interest rates and a smooth development of disruptive financial technology.

The credit rating agency also highlighted the market risk that started after Donald Trump won the US presidential election, leading to a rapid increase in interest rates and strong dollar.

 "Rising dollar will hurt APAC exporters and make it more difficult for borrowers to service dollar-denominated debts," Fitch warned, adding Donald Trump's proposed protectionist policies could disrupt trade, particularly damaging emerging-Asian economies. 

"These difficult and uncertain operating environments are likely to translate into further asset-quality deterioration in 2017. We also expect low risk appetite holding demand for credit, which will lead to margin pressures. As a result, banking outlook has become progressively weaker," it said.