China slowdown poses moderate risks to Asian banks

China's economic slowdown poses risks for banks in Asia-Pacific, even though they mostly do not have large direct exposures to the world's second-largest economy, as certain sectors will suffer declines in sales to China, weakening their abilities to service debt. Yet there are a range of factors that mitigate such risks, a Moody’s report said.
A potential decrease in investment by Chinese entities in the region can also lead to slower economic growth in the recipient countries, again indirectly affecting their banking sector in a negative way.
For example, China is a major consumer of commodities, and banks in Indonesia, Mongolia and New Zealand have substantial direct exposures to companies exporting to China. Reductions in China's demand for key commodities can hurt producers' revenue, which in turn can result in deterioration in their lenders’ asset quality.
The impact varies across Asia. Banks in Mongolia in particular are vulnerable because China is the major destination for commodity exports. However, for those in Indonesia, declining but still high commodity prices will mitigate asset risks from exporters, while for New Zealand, demand for its high-quality dairy products will be more resilient than hard commodities, which will limit the sector's credit risks as a whole, the report explained.
Hong Kong's economy and corporates have strong linkages with China. Banks that have seen faster growth in exposure to China as well as those with higher exposure to private enterprises and smaller companies are particularly at risk.
Most other banks with direct exposures to China will be affected moderately because their China-based customers are mostly high-quality state-owned enterprises, foreign firms and domestic
companies predominantly outside the real estate sector. Moreover, a large proportion of their exposures to China have short tenors, which lessens credit risks.
-- Contact us at [email protected]
-
Collaboration to Transform Waste into Resources Dr. Winnie Tang
Over the past decade, the amount of waste produced by Hong Kong residents has remained high. According to government data, the per capita municipal solid waste disposal rate per day in Hong Kong
-
Is certainty a sin? Brian YS Wong
A few weeks back, I watched one of the most widely anticipated releases of 2024 – Conclave, a riveting political thriller directed by Edward Berger. Without giving too much away, I would settle for
-
Why Carpe Diem Brian YS Wong
“Carpe Diem” – we are told. To seize the day, is a moral prerogative. We must expend each and every hour, minute, and second with due care and caution, paying conscientious heed to the fact that our
-
British doctor’s autobiography describes remarkable life in HK Mark O'Neill
Dr John Mackay arrived in Hong Kong in 1963 and has lived here ever since. For 30 years. he was one of the city’s most respected physicians in one of the largest medical practices and then chose a
-
To build Hong Kong into an AI training base Dr. Winnie Tang
Since 2022, the Government has introduced a number of measures to compete for talents, and this year's Policy Address has made more persistent efforts to nurture local and lure I&T talent from all