KUALA LUMPUR (April 18): China's reopening will be a boon to the economies — and hence the banking systems — of Hong Kong (Aa3 stable), Macau (Aa3 stable), Mongolia (B3 stable) and Thailand (Baa1 stable), given their close economic ties to China through shared borders or tourism, said Moody’s Investors Service.

In a report on Monday (April 17), the agency said multinational banks with sizeable operations in Hong Kong and mainland China will also benefit.

However, it said benefits will be smaller for banks in other parts of the region, because China's economic recovery will be led by domestically oriented services and consumption, while the global economic slowdown and the effects of elevated inflation and higher interest rates in most Asia-Pacific economies loom large.

Moody’s said banks in Hong Kong, Macau, Mongolia and Thailand will benefit most as movements of goods and travellers normalise.

It said Hong Kong's exports will improve, as restrictions on truck movements between Hong Kong and mainland China are lifted, while tourism in Hong Kong will rebound when Chinese visitors return.

Mongolia's exports to China will recover on relaxed border controls. The normalisation of trade and travel with mainland China, coupled with the republic's economic recovery, will slow the growth of non-performing loans (NPLs) in Hong Kong and Mongolia.

Moody’s said Thailand and Macau will get a relief from the return of Chinese tourists, who were key to tourism prior to the Covid-19 pandemic.

It said this will ease pressure on the banks' asset quality.

Multinational banks with sizeable exposure to Hong Kong and mainland China will also benefit.

The three largest banks in Singapore (Aaa stable) — DBS Bank Ltd (Aa1 stable, a1), Oversea-Chinese Banking Corp Ltd (Aa1 stable, a1) and United Overseas Bank Ltd (Aa1 stable, a1) — as well as Standard Chartered plc (A3 stable, baa1) and HSBC Holdings plc (A3 stable, a3), have significant direct exposure to Hong Kong and mainland China through their own operations in the two markets.

Moody’s said NPL formation in Hong Kong and mainland China will slow, while fee income from wealth management services will rebound.

“Growth across Asia-Pacific, except for Hong Kong, Macau and Thailand, will moderate,” it said.