Support measures for borrowers will limit the asset quality decline in Thailand, Indonesia, and the Philippines and banks in these countries have sufficient capital and provisions to absorb losses, though the resurgence of coronavirus cases will hinder their economic recovery and raise asset risks for banks , said Moody’s recently.
"Thai banks' overall asset quality deterioration will be modest, with nonperforming loans (NPLs) rising to 5%-6% of gross loans by the end of 2022, from about 4% as of the end of June 2020," said Eugene Tarzimanov, a Moody's Vice President and Senior Credit Officer.
Support measures, including the relaxation of loan classification rules for small and medium enterprises (SMEs) and individuals, will mitigate asset quality declines, Moody’s pointed out.
In Indonesia, banks have large loan-loss reserves and strong pre-provision profitability backed by high net interest margins to cover expected loan losses, said the credit rating agency.
“Regulators have eased rules for Indonesian banks to restructure loans for pandemic-hit borrowers without classifying them as nonperforming, a support measure that will likely be extended beyond March 2022," said Tengfu Li, a Moody's Analyst.
In the Philippines, despite a spike in NPLs over the past 18 months, banks have strong buffers against loan losses, according to Moody’s.
Most banks in the country had increased loan-loss provisions in early 2020 in anticipation of increased problem loans caused by the pandemic and maintained sufficiently strong capital to absorb unexpected loan losses, said Joyce Ong, a Moody's Analyst.
"But Philippine banks' asset quality will be hit hard by the pandemic resurgence, however, as default risks rise among individuals, SMEs and undiversified mid-to-large companies in sectors particularly vulnerable to pandemic restrictions, such as hospitality and retail," Ong noted.
Despite the risks, the long-term growth prospects for banks in all three countries remain intact, and customer adoption of digital financial services will support expansion, Moody’s said.
Thai banks operate in a large well-diversified economy, supported by the policy credibility of key institutions, such as the Bank of Thailand and the Ministry of Finance, the firm observed.
Meanwhile, the large, young populations of Indonesia and the Philippines will create a pool of future customers that will support the economies, Moody’s added.