Energy shock exposes fault lines across APAC banks

The Philippines, Thailand, and Sri Lanka will be most negatively affected.

APAC banks face higher energy prices and weak growth, but impact across markets will be mixed, said Fitch Ratings.

The region’s high dependence on oil and gas imports renders it vulnerable to the US-Iran conflict.

Weaker domestic demand and tighter policy settings are likely to drive credit deterioration in the region’s more vulnerable markets, with the Philippines, Thailand, and Sri Lanka amongst the most negatively affected.

“In the Philippines, significantly higher inflation is hurting a consumption-led economy. We also expect weaker loan growth, higher credit costs and lower operating profitability, even if higher rates provide some support to margins,” the company said.

In Sri Lanka, asset quality is expected to weaken and credit costs are at risk of rising more sharply on the back of a recent 100 basis point policy rate increase and exchange rate volatility.

Thai banks’ asset quality and profitability are expected to weaken further due to the country’s low growth environment.

“Non-performing loans are likely to edge up, led by small and medium-sized enterprise exposures and, to a lesser extent, retail borrowers,” Fitch said.

In contrast, Japan is expected to stay amongst the region’s more resilient banking markets.

“South Korea and India also appear better placed than many peers to absorb higher energy prices,” Fitch said.