Here's why Asian banks' NIMs will slump

Find out what the two key factors are.

According to Barclays, economic slowdown and softening monetary cycle stand are amongst the key factors behind expectations of NIM decline.

Here's more from Barclays:

Economic slowdown
Slowdown in the global economy is well evident. Over the past few quarters, we have seen falling GDP growth rates across the globe amid softening trade and lower IIP and PMI readings.

As per IMF, the global economy in 2012 will grow by 3.3% vs. its July 2012 estimate of 3.5%, marking the slowest year of growth post the 2009 financial crisis.

The ongoing global economic slowdown not only having an impact on the US, Europe and Japan, it has implications forAsian economies as well. During the year ending 2012, China is expected to post 1.7% y/y fall in its GDP growth rate, followed by flat growth in 2013. 

Trends in other AEJ coverage nations are almost the same: during 2012, Hong Kong’s economy is expected to witness a fall of 3.5% y/y, Singapore(2.8% y/y), Taiwan (3.0% y/y), India (2.0% y/y). GDP growth in 2013 is expected to give some support to the low base of 2012.  

Interest rate cuts
As the Asia-Pacific region is facing growth worries, central banks in the region have focused on growth.

During mid 2012, with the mandate to arrest the economic slowdown in China, PBoC, China’s central bank has implemented an accelerated approach to the interest rate deregulation process coupled with interest rate cuts.

In its latest policy meeting, South Korea has cut its policy rate by 25 basis points to 2.75%, the second cut in the space of four months during 2012.