Asian banks face double trouble

Slowing regional economic growth and tight credit markets are major headwinds.

Asian banks are facing increasing headwinds as regional economic growth slows and credit markets tighten amid rising debt levels, according to BMI Research.

The chief catalyst for the deterioration in the Asian banking sector's collective outlook is the Chinese economy, which is in the midst of what we believe will be a protracted slowdown following a period of heavily credit-intensive, rapid economic growth.

BMI Research adds that following the introduction of the Chinese government's CNY4.0trn stimulus programme during the global financial crisis, China's overall debt burden surged at an unprecedented rate, reaching 282.0% of GDP in 2014 according to estimates from the McKinsey Global Institute.

"While the overall debt burden in China is a concern, the pace of the rise (from just 158.0% of GDP in 2007) is perhaps even more of a warning sign that asset quality in the mainland could experience a dramatic deterioration over the coming years."