Fitch Ratings: ASEAN Bank Exposures to Become Clearer as Relief is Tapered

(The following statement was released by the rating agency)
Fitch Ratings-Singapore/Hong Kong-08 October 2020: The extension of schemes to
support borrowers in ASEAN amid the coronavirus pandemic shock will continue
to obscure the extent of deterioration in regional banks' asset quality, but
the gradual narrowing of relief programmes will provide more clarity about the
issue in the next few quarters, says Fitch Ratings. The process of scaling
back relief will be an important step towards quantifying the scale of the
non-performing loans (NPLs), which will allow banks to make more accurate
provisioning and address balance-sheet issues that arise. Malaysia's
six-month blanket moratorium on all retail and SME loans lapsed on 30
September. The authorities have extended the scheme by offering affected
individual and SME borrowers full or partial relief for a further three to six
months, but the number of borrowers eligible for relief is likely to drop.
Bank Negara Malaysia has said that 500,000 borrowers had applied for a
moratorium extension as of end-September, compared with the 7.7 million
individuals and 243,000 SMEs covered by the previous blanket scheme. This
pattern of extending borrower relief schemes but narrowing their scope was
also seen in other ASEAN markets, including the Philippines and Singapore. The
continued extension of these schemes highlights the challenges to borrower
repayment capacity presented by the pandemic, which will extend into 2021 in
many markets. The additional forbearance will give borrowers more time to
repair their finances or find ways to make repayments. Some borrowers at the
margin may avoid falling into arrears that would have occurred in the absence
of relief, if economies continue to rebound in line with our forecasts. This
may help to lower banks' peak NPL ratios. However, for other borrowers with
structural repayment difficulties, the extension of moratoriums will only
postpone banks' recognition of NPLs into late-2021 or beyond. The narrowing
of relief schemes should nonetheless result in a reduction in the volume of
lending under moratorium. In addition, those loans that remain under
moratorium will need to meet tighter qualifying requirements in most markets,
which should allow better assumptions to be made about their underlying
condition. The process should thus provide greater clarity about the impact
of the crisis on banks' asset quality. There is a risk that this could
reveal worse-than-expected bad debt problems in some markets. We believe this
risk will be higher in countries that employed more extensive moratoriums,
such as Malaysia and the Philippines, or where economic downturns associated
with the pandemic have been sharper. In Singapore, Thailand, Indonesia and
Vietnam, banks have had more discretion in deciding the loan reliefs granted
to their borrowers. The impact of any adverse asset-quality surprises will be
lower where banks are more resilient as a result of having stronger core
profitability, setting aside greater cumulative reserves, or holding higher
levels of capital. Nevertheless, there is still a risk that better-prepared
banks could face downward rating pressure in cases where large asset-quality
problems emerge, as ratings strengths could be eroded under such stressed
scenarios. Contact: Priscilla Tjitra Associate Director, Financial
Institutions +65 6796 7238 Fitch Ratings Singapore Pte Ltd. One Raffles Quay
South Tower #22-11 Singapore 048583 Willie Tanoto Director, Financial
Institutions +65 6796 7219 Duncan Innes-Ker Senior Director, Fitch Wire +852
2263 9993

Media Relations: Wai Lun Wan, Hong Kong, Tel: +852 2263 9935, Email:
wailun.wan@thefitchgroup.com
Leslie Tan, Singapore, Tel: +65 6796 7234, Email: leslie.tan@thefitchgroup.com

The above article originally appeared as a post on the Fitch Wire credit
market commentary page. The original article can be accessed at
www.fitchratings.com. All opinions expressed are those of Fitch Ratings.


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