Maybank has downgraded its sector outlook on Asean banks to negative, saying their asset quality risks remain high while operational recovery may be limited.
Asean banks continued to see negative earnings momentum in Q2, with Indonesia, the Philippines and Thailand faring worse, Maybank said.
Maybank is Malaysia’s largest financial services group and the leading banking group in South East Asia.
“As moratoriums begin to unwind, starting from Q3 in Malaysia, we expect additional asset quality pressures to surface,” the bank’s research team wrote in a report.
Domestic-focus banks could face higher operational pitfalls
In particular, banks that have a domestic focus may see higher operational pressures, especially if economic activities fail to pick up pace.
For the second quarter, Asean banks’ earnings momentum remained largely negative, quarter on quarter, with those in Indonesia, the Philippines and Thailand worsening substantially.
There may be dislocations between real asset quality and recognition of non-performing loans (NPLs), seeing as there are various forms of loan moratoriums and support measures in play, the analysts said, adding that banks in the region continue to face risks of higher credit charges.
Between Q4 2019 and Q2 2020, gross NPLs had increased substantially by around 23-60 basis points for lenders in Indonesia, the Philippines and Thailand.
Operational green shoots remain vulnerable
But even that may not reflect the full impact, considering the moratoriums in place.
For instance, Indonesia’s percentage of restructured loans – which are not recognised as NPLs – shot up to 17.2 per cent in Q2 2020, from 4.8 per cent in Q1 2020.
Credit charges recorded by banks in Indonesia, Thailand, Singapore and Malaysia for the first half of this year were all higher than the past three-year average.
In addition, operational green shoots are under pressure, with borders still largely closed and risks of domestic “mini lockdowns” causing disruption.