KUALA LUMPUR (July 26): The level of non-financial corporate leverage in parts of Asia is high and this has created high latent risks for banks as the US fiscal policy gradually tightens, according to Moody’s Investors Service.

“Our view is that the current level of non-financial corporate leverage in parts of Asia is indeed high, as many corporates have taken on excessive debt to take advantage of very low interest rates, following the 2008-2009 global financial crisis,” Moody’s said in a report yesterday on banks in Asia Pacific (APAC).

“In our view, asset quality risks for most APAC banks have abated, given a mild recovery in global and regional economic conditions and broadly stable commodity prices,” the report added.

It also said the share of debt held by firms with poor interest coverage ratios is high in India, Indonesia, Singapore and China.

Moreover, according to a poll conducted on 210 market participants, nearly 70% of the respondents in Hong Kong picked India's banking system as the most vulnerable among seven systems in South Asia and Southeast Asia, the report added.

“The above views on Indian banks are in line with our latest assessment that many banks in that country are undercapitalised and continue to lack sufficient loan-loss provisions,” Moody's said.

It added some were worried about Malaysian and Vietnamese banks, but they represent around 10% of the respondents in either Hong Kong or Singapore.

“On housing bubbles, the divergence in responses in Hong Kong and Singapore also echoes our assessment that high housing prices remain a key risk for banks in some systems such as Hong Kong and Australia, while property prices have been more effectively-controlled in Singapore,” Moody’s said.