APAC banks have to deal with slower credit growth and closer monitoring: Fitch

Due to credit cycle changes.

Banks in the Asia-Pacific (APAC) face slowing credit growth and tighter loan monitoring as the credit cycle turns, Fitch Ratings has said in its first APAC FinancialInstitutions Quarterly Dashboard.

According to a release from Fitch Ratings, while authorities in various countries have taken steps to rein in indebtedness, Fitch believes that macroeconomic stability is key to keeping losses in check.

In addition, controlling the pace of loan growth and preventing bubbles, often in the property sector, associated with rapid growth is more important than focusing solely on the absolute credit/GDP levels.

The release also mentioned that ttems that are highlighted in the report include spill-overs from China's economic stimulus, rapid expansion in household credit due to emerging Asia's rising middle class and Fitch's expectation that credit costs arebound to rise as loans mature and economies slow.

Here’s more from Fitch Ratings:

Targeting Indebtedness: Fitch Ratings believes that controlling the pace of growth and the potential bubbles (often property) associated with rapid growth is more important than focusing solely on the absolute credit/GDP levels.

Various supervisors have been providing guidance on lending criteria and growth rates, while the South Korean authorities made it easier for borrowers to declare bankruptcy – leading to higher losses, in particular for foreign banks.

Focus on Household Wealth: Fitch expects that authorities will pay close attention to property prices to avoid declining household assets, such as in markets where mortgages dominate, eg Taiwan ( 85% of retail loans); Australia, Hong Kong and Singapore (70%-75%).

Loan Deterioration: Credit costs will rise as loan books season and economies slow. Consequently, macroeconomic stability will be key to keep losses in check.

Our last two charts show that headline NPL ratios have remained low in most of greater China, Singapore, India, Malaysia, the Philippines and Thailand.

Under-reporting and late-loss recognition are not uncommon, as many markets report loan performance based on overdue days.

Ratings Impact: Stable. Fitch has maintained stable rating outlooks on all APAC banking systems bar Mongolia, due to generally sound loss-absorption capacity (see 2014 Outlook: Asia-Pacific Banks).

Banks in China, Vietnam and India have the weakest loss buffers and the greatest capital pressures.