Thursday 28 Mar 2024
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KUALA LUMPUR (April 20): While Asia-Pacific (APAC) banks are expected to face heightened property risks over the medium term, household leverage are seen to have started to decline in emerging markets where it was highest such as in Malaysia and Thailand, according to Fitch Ratings in a statement today.

"We expect some fallout from over-supply [of residential property] in Malaysia, but risks to banks should be manageable as their exposure to the more vulnerable segments has remained small," said Fitch in a statement today.

Fitch noted that the strong commercial real-estate lending growth by Thai banks in 2017 reflected an improving operating environment and followed sluggish growth in previous years, although there are still risks associated with consumer lending.

In Philippines, Fitch said the real-estate lending growth has also remained.

Given that economic conditions are likely to remain benign, Fitch pointed out that the risk across APAC of a residential property market downturn that significantly undermines banks' asset quality is unlikely in 2018.

"However, rapid mortgage lending growth, incrementally higher risk-taking and relaxed mortgage pricing amid competitive pressures are likely to have created vulnerabilities that could be tested by a change in economic conditions," said Fitch.

Despite having views that monetary tightening will be much slower in APAC than in the US, Fitch noted that the rising interest rates are a potential trigger.

Thus, APAC regulators have actively tightened macro-prudential measures in an effort to strengthen banking-sector resilience to potential property risks.

"These measures have helped cool property markets in Singapore and Taiwan, while the tight stance has generally bolstered loss-absorption buffers and supported lending standards," said Fitch.

Nevertheless, Fitch noted that the continued rapid lending and a further rise in risk appetite could increase the prospects of negative ratings action in the medium term, particularly in the absence of commensurate reinforcement to buffers.

Meanwhile, Fitch highlighted that Australian and New Zealand Banks have the highest residential property risks which may remain elevated in the short term as low interest rates and high house prices continue to drive mortgage growth.

Australian and New Zealand households also have some of the region's highest debt burdens, Fitch added.

Residential property loans accounted for 43% of Australian bank assets in December 2017, up from 39% five years earlier, while the share rose to 46% from 43% in New Zealand.

 

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