Moody's: Asia banks view negative

Moody's Investors Service said that its industry outlook for banking systems in North Asia, with the exception of Japan, is negative, reflecting the impact of the slowdowns in global and domestic economies on the region's banks.

The slowdown and the consequent impact on the demand for exports - a key driver of growth in China, Hong Kong, Taiwan and Korea - are making themselves felt on the performances of banks in North Asia, Moody's said. By contrast, outlooks are stable.

The negative outlook for China's banking system is highly correlated with the state of China's economy, the agency said, and prolonged low growth would stress more sectors, which in turn would damage bank asset quality as more companies struggle to repay their bank loans. China is facing its first economic downturn since the commercialization of its major banks a few years ago, while the banking system is flooded with liquidity, resulting in astonishing loan growth, the agency said.

With Hong Kong's banks, downward pressure is apparent on credit quality and earnings, Moody's said, but the sector benefits from the presence of crisis-tested management teams with proven track records and healthy financials, as highlighted by solid capital bases and sufficient liquidity. But the credit cycle in Hong Kong is gradually going downhill, leading to higher impairment charges, the agency said.

And in Taiwan, the recession has caused concerns over the near-term outlook for asset quality, Moody's said, and hence rising credit costs. Earnings are under pressure as policy easing - through a series of rate cuts - has compressed the banks' interest margins to record lows, the agency said.

In Korea, both profitability and asset quality are under pressure, while a new government regulation is expected to intensify competition between banks and non-banking financial companies as they seek to attract customers' financial assets and provide financial services to corporations, Moody's said. The government's policy and behavior towards the banks suggest that systemic support for the banks in Korea will continue to be high, the agency said.

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