Recoveries are expected to stabilize in the second half of 2021. capital levels are most adequate in Australia, New Zealand, Hong Kong and South Korea. Singapore’s major banks have the least headroom. In emerging markets, challenges to maintaining capital levels comfortably above minimum regulatory requirements are greater in India, China, Vietnam, Sri Lanka and Mongolia
Despite the expected economic recoveries, APAC markets will still see elevated unemployment levels compared to those during pre-coronavirus, which will weigh on household delinquencies and credit costs. Risks will reportedly be greatest for borrowers in vulnerable sectors like tourism, retail or commercial property, as well as in SME borrowing.
The region’s improving economic fundamentals may give banks confidence to boost lending, but it will not fully mitigate the structural challenges due to lower interest rates and acute competition.
Profits will be sustained but subdued, which may drive banks to take on more risk selectively in the longer term to boost earnings. Many banks may also choose to adopt a more risk-averse approach in the near term if they remain uncertain about the economic outlook. The rise of sustainability also threatens some markets’ business models, particularly Japan. Ongoing ESG-related adjusted across APAC banks that include greater investments in enhanced digital capabilities and the adoption of leaner and more flexible cost bases.