Viewpoints

APAC Banking Sector Study: Identifying the Most Resilient Countries

At an aggregate level, banks in Japan, Korea and China fared better under our stress test versus those in India and Australia.

The banking sector has transitioned from being at the epicenter of the 2008 global financial crisis (GFC) to being part of the potential solution following the 2020 COVID-19 outbreak.  We believe that the impact of COVID-19 on banks has been moderate in most APAC countries because of the supportive stance of governments and financial institutions, along with relatively better initial conditions. Accommodative government policy, coupled with less stringent regulation, has provided banks with adequate time to absorb the potential shock. Despite that, the spreads for APAC financial institutions are wider than their U.S. peers, largely for technical reasons.

This study assesses how banks across Asia Pacific have been affected by COVID-19 and how they performed under our stress test analysis. Based on this analysis, discussed below, we conclude that Japan, China and Korea may offer attractive investment opportunities with the potential for excess return and defense. On the other hand, we maintain a cautious approach towards Australian and Indian banks considering the risks of rising nonperforming loans (NPLs) related to structural issues and the ongoing pandemic.

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The Author

Takanori Miyoshi

Credit Analyst, Asian Financials

Annisa Lee

Head of Asia-Pacific Credit Research

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