Emerging Asian banks may outpace developed peers in credit gains

The Philippine and Thai infrastructure campaigns will fuel borrowing.

Banks in emerging Asia may just be in a stronger position to ward off growing downside risks than their more developed peers like Singapore and Hong Kong as the former’s lending activities tipped to be ‘more resilient’ in the future, according to Fitch Ratings. 

Domestic credit growth is set to slow in the region’s developed markets due to a combination of negative factors like weaker economic growth, high private-sector leverage and cooling property markets.

Such is the particular case with Hong Kong whose loan growth is expected to remain subdued as escalating trade tensions and a slowdown in the residential market dampened borrowing activity. “The property sector is a key risk for many markets, particularly in Australia and Hong Kong, but we do not expect sharp downturns, and most banking systems have buffers to absorb considerable stress,” Fitch Ratings said in a report.

Also read: Mortgage slowdown to hit Australian bank loans in 2019

Additionally, the large foreign currency exposure of Hong Kong and Singapore renders them particularly vulnerable to escalating trade tensions between the US and China. 

Fitch has also revised the sector outlooks for Hong Kong, Singapore and Indonesia to negative from stable in 2018.

On the other hand, banks in emerging markets such as Indonesia, Korea, Malaysia, the Philippines, Taiwan and Thailand are poised to weather the downturn better than their developed peers who are struggling to eke out gains.

“We expect credit growth to be more resilient in emerging markets, as high levels of investment - including government initiatives to upgrade infrastructure - will support demand for bank funding,” Fitch Ratings said.

Also read: Philippine infrastructure campaign lifts dismal lending prospects

For instance, Thailand's massive infrastructure drive which sets aside around $80.96b (THB2.7t) under the Transport Action plan is poised to boost loan growth to 5% in 2018, Fitch Solutions said in an earlier report. Around $14b (THB1t) of projects has already started or will begin construction 2018.