Economic growth to cushion rising risks faced by ASEAN banks

Tightening of interest rate cycles in 2023 will weaken asset quality, says Fitch.

The expected robust economic growth in ASEAN markets should mitigate risks to their banking sectors, according to a report by Fitch Ratings.

The tightening of the regional interest rate cycle through 2023 is expected to weaken asset quality across most ASEAN banking systems, the ratings agency said. Rates are likely to rise further this year in all six key ASEAN banking markets, aggravating the impact. 

For most, economic growth is also set to slow as external headwinds mount, with only Thailand seeing faster expansion.

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“However, risks to bank credit profiles in 2023 should be mitigated by robust economic growth, adequate provisioning and the higher rates lifting net interest margins in most markets,” the report added.

However, compared to Europe and the US, inflationary pressure in Indonesia, Malaysia, Thailand and Vietnam have been noted to be more muted. This reduces the need for dramatic monetary policy tightening, according to Fitch.

“Coupled with continued robust domestic demand growth prospects and resilient job markets, [this] should help limit asset-quality pressure,” the ratings agency added