KUALA LUMPUR: Banking sectors in Malaysia, Indonesia and Thailand are on the negative sector outlook due to high risks and challenging operating environment across Asean region, said Fitch Ratings.
Singapore, although placed on a stable sector outlook, faced downside risks that have risen over the past year.
The ratings agency described both Indonesia and Malaysia as the most exposed to the negative effects of lower commodity prices in the region although both economies have recovered from the terms-of-trade shock.
"The weaker operating environment could potentially expose vulnerabilities created in Asean's banking systems during the years of rapid credit growth that followed the 2008 global financial crisis." it said.
Credit growth has slowed in most countries over the past two years, although credit/GDP ratios are generally much higher than a decade ago.
Household debt has risen particularly strongly in Malaysia, Thailand and Singapore.
In Thailand, GDP growth has been held back by rapid population ageing and declining export competitiveness.
"Nevertheless, the major banks in all of these economies look resilient and remain on a stable rating outlook, owing to satisfactory profitability and strong loss-absorption capacity." it added.
Prolonged economic weakness in any of these economies could cause a reassessment of our bank ratings, warned Fitch.
Buffers are much thinner in Vietnam, where banks have the lowest ratings among those that were assessed due to the legacy problem assets and also face structural problems.
Fitch Ratings described the operating environment as challenging for banks across the region over the last few years – due to slower global GDP growth, weak world trade, currency depreciation and drop in commodity prices - while risks also stemmed from a sharp rise in debt during the last decade.
Non-performing loans are expected to rise in 2016 in most of the banking sectors.
In most countries banks have adequate loss-absorption buffers that should support their ratings, says Fitch Ratings.