India, Philippines banks in trouble amidst renewed infection surge

Emerging banks in Asia continue to be in a tough operating environment, says Fitch.

Excluding China, the future will continue to be difficult for most emerging market banking systems in Asia, with operating environments having weakened in the past 12 months, according to Fitch Ratings.

Challenges are greatest in countries where infection rates remain high, particularly in India and the Philippines. In India, the surge in new coronavirus cases is exacerbating pre-pandemic issues around asset quality and capital shortfalls; whilst in the Philippine banking systems’ underwriting standards are being severely tested by the stubborn infection rate.

Sri Lanka is also another market where challenges will likely be greatest due to its sovereign and macroeconomic risks, the ratings agency noted.

Outside of these three markets, Thailand and Indonesia are sighted to face further loan stress in the near future, although loss absorption should adequately mitigate risks.

In contrast, relative economic stability in Malaysia, China, South Korea and Taiwan should limit near-term downside risks to reported loan quality in these markets.

As expected, more signs of positive and sustainable improvements are appearing in markets where the virus spread has been better contained.

“Relative to 2020, we see improving business generation prospects and sector outlooks in China, Taiwan and Indonesia, notwithstanding asset quality risks,” Fitch said.