Among BRICS (Brazil, Russia, India, China and South Africa), China banks have the strongest credit profile, according to Moody’s investor service in a report published on Monday.
As per the report, Russian banks have the weakest profile among members of the coalition.
China banks have the highest asset-weighted average Adjusted BCA (Baseline Credit Assessment) among the world’s fastest growing emerging economies, at baa2, mainly thanks to the dominance of large state-owned banks, says Moody’s.
While China’s expansion will slow moderately, the nation’s banks have the lowest ratio of problem loans among the group,” said Moody’s associate managing director Yaroslav Sovgyra. Among the BRICS, China’s banks have the highest quality of assets, with a NPL (non-performing loans) ratio of 1.5 percent, compared to 11.8 percent at Russian banks with the highest ratio.
Indian bank have the second highest NPL ratio, however this is expected to gradually decline as stressed asset recognition is largely complete and new NPL formation moderates in the next 12-18 months. Stressed asset resolution will also help reduce NPL ratios at Indian banks, Moody’s added.
In terms of capitalisation, Indian banks have the weakest capitalisation with a common equity ratio of 8.7 percent, compared to 12.4 percent at South African banks, which were the most strongly capitalised at the end of 2017.
“System wide asset quality in India is weak due to stressed public sector banks, which dominate the sector. Government capital infusions will boost weak public sector banks’ capital ratios,” the report said.
Indian banks also showed distinctively weaker profitability, due to high credit costs at state-owned banks. Returns are expected to remain under pressure for the rest of the fiscal year (until March 2019) as provisions for credit losses at state-owned banks remain large. But profitability will improve in the next fiscal year as asset quality stabilises, it added.
Meanwhile, profitability at Chinese banks is expected to remain stable as an improvement in net interest margins offsets pressure on fee income and high credit costs.
South African and Brazilian banks were cited as the most profitable among BRICS nations.
- Asia Regulation