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Operating environment risk to ASEAN bank ratings: Fitch

The international ratings agency Fitch is warning that the increasingly negative operating environment in many ASEAN countries poses risks to bank ratings.

SINGAPORE: The international ratings agency Fitch is warning that the increasingly negative operating environment in many ASEAN countries poses risks to bank ratings.

At a conference on Thursday, Fitch said rapid credit growth over the years has led to higher leverage and asset-price inflation, particularly with sharply rising household debt in countries like Malaysia, Thailand and Singapore.

It also added that uncertainties surrounding the Chinese macroeconomic outlook are a key point of risk.

While Singapore banks are rated among the highest in the world -- a rating of AA- by Fitch -- with a stable outlook, Fitch cautioned that increasing exposure to Greater China could be a potential concern.

It said that OCBC Bank's acquisition of Hong Kong's Wing Hang Bank in April has resulted in a fair material change in the bank's risk profile, especially in terms of its exposure to China.

But whether the bank's rating will be revised depends on how the transaction is being funded, and whether OCBC could retain its high levels of core capital.

However, Singapore banks are among the best-capitalised in the world with strong loss-absorption buffers against impairment risks, and they have demonstrated good resilience through economic cycles and their regional expansion-related risks have also been manageable so far.

Ambreesh Srivastava, head of South and Southeast Asian Financial Institutions at Fitch Ratings, said: "For the most part, they have focused on the lower risk segment -- even in the trade finance, most of their loans are backed by letters of credit, of banks which are very large or state-owned, and therefore it is not a default risk in the very near term.  

"But the question is, what does it tell you about risk appetite -- you can't just keep going on doing the same thing again and again in incremental terms, because then it all adds up."

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