KUALA LUMPUR (July 14): Malaysian, Singaporean and Philippine banks have the best asset quality among regional peers, with non-performing loans below 2%, said Moody's Investors Service.

In a new report titled “Banks in Asean and India face increasing headwinds amid the pandemic” released today, Moody’s said the challenging economic and credit conditions stemming from Covid-19 will weigh on Asean and Indian banks’ asset quality and profitability.

It said banks face higher problem loans and lower profitability, but most are adequately capitalised to withstand higher credit risk.

Eugene Tarzimanov, a Moody’s vice-president and senior credit officer, said in Asean and India, bank downgrades in 2020 had been driven by Indian banks, following a downgrade of the sovereign in June.

“That said, the majority of banks in the region are well positioned at their ratings despite a higher share of negative outlooks for bank ratings,” he said.

Moody’s expects asset quality and profitability to deteriorate from the good levels in 2019 across most banking systems.

And while government support measures will offset some of the pressure on banks, they will not fully eliminate the negative impact, it said.

However, Moody’s said despite the challenging outlook, the majority of banks are adequately capitalised, and their funding and liquidity will remain sound and stable in 2020-21.

It said, for instance, regulators in India, Thailand and Vietnam had restricted bank dividends, a credit positive for banks, while the largest banks will continue to benefit from deposit inflows as they are seen as safe havens in times of stress.

Meanwhile, Moody’s expects gross domestic product (GDP) of most Asean economies and India to contract in 2020 and gradually recover in 2021.

It said the relaxation of lockdowns and resumption of economic activity will be key factors supporting the recovery.