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Credit Suisse Analysts Warn of Further Headwinds for Asian Banks in 2009
Speaking at the sidelines of the Asian Investment Conference in Hong Kong, Head of Asian Financial Institutions Research Sanjay Jain told reporters Asian banks outperformed the broader non-Japan Asia market in 2008, but said he had concerns about the banks’ earnings in 2009 and 2010.
He said the main concern was that non-performing loans may rise sharply in 2009, although they were unlikely to reach the same peaks as during the Asian Financial Crisis in 1998-99.
“We do believe the cycle to be milder this time, but clearly the current assumptions about loan losses could turn out to be too low,” he said. “In four out of 10 countries, our economists are forecasting a contraction in GDP (Gross Domestic Product) in 2009 without a significant rebound, unlike in 1999.”
“We believe our forecast earnings, already below consensus, have further downside risk.”
Mr. Jain said loan growth is likely to decelerate sharply and loan books might even shrink except in China, India and Indonesia. Loan margins are expanding, offset partially by liability spreads. Fee income should remain under tremendous pressure as well, added Mr. Jain, who expects non-performing loan levels to peak by the first half of 2010.
China Banks Analyst Sherry Lin said that in China, growth in overall loans and deposits continued, but that new lending was falling and credit demand outside government-led infrastructure financing was weak.
Ms. Lin forecast that Chinese banks, some of which released their full year earnings for 2008 this week, would post average net attributable profit growth of 35% in 2008, with core profit (pre-provisions) growing at a slightly lower rate of 29%. “On a core profit level, we expect 2009 pre-provision profits of Chinese banks to fall by an average of 7%, driven mainly by narrowed net interest margins and decelerated fee growth.”
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