2 factors that threaten banks in Asia-Pac

Profitability in 2013 likely to be subdued.

According to a release, continued low interest rates and abundant liquidity—products of the increasing wave of global monetary easing--promise to add to the risks that Asia-Pacific’s largest banks already face, Standard & Poor's Ratings Services said in a report released today.

The region’s major banks posted solid financial results in fiscal 2012 (ended Dec. 31, 2012, or March 31, 2013), which was within Standard & Poor’s Ratings Services’ expectations. In recent years, the banks have shown steady profitability in comparison with their peers in the U.S. and Europe.

And in principal, we expect major banks in Asia-Pacific to retain their strength in the upcoming year. However, their profitability in 2013 may be more subdued as globally low interest rates and plentiful liquidity from continued quantitative easing by major countries squeeze interest margins.

Standard & Poor’s also views that the hike in property prices and excessive loan growth in some Asia-Pacific countries--fueled by easy monetary conditions--impose risks on the credit quality of the banks.

The exposure to debt-laden corporates and household sectors also looms as an uncertainty for the region. Japan’s recent policies--dubbed “Abenomics”--are designed to lift the country out of deflation and have led to a sharp fall in the yen.

The impact of this on the currencies and economies in other Asia-Pacific countries, especially Korea, Taiwan, and China also stands as a potential credit factor.

Despite these potential sensitivities impacting on asset quality and earnings, we believe that capitalization, liquidity, and government support should continue to underpin the ratings on many of Asia-Pacific’s major banks.

The region’s banks are generally in good health by global standards and we believe this trend will persist during 2013.