Tag: Moody

Outlook for Indian banks is stable, says Moody’s, BFSI News, ET BFSI

Banking & Finance

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Outlook for Indian banks is stable as a likely pick up in lending growth in a supportive policy environment is expected to drive credit cost down, Moody’s Investors Service said.

“Pickup in activity levels will drive credit growth, with positive effects to asset risks,” the global rating company said in a report on banks in the emerging market.

The report lauded India’s rising vaccination rates and selective use of restrictions that helped recovery in economic activity.

“Stable asset quality supported by gradual improvement in the job market and better corporate risk will help reduce credit costs as economic activity normalizes,” it said, adding that policy support for borrowers would limit asset quality deterioration.

The report projected a stable outlook for banks in the entire emerging market space, supported by continued recovery in economic activity, as well as banks’ solid balance sheets, including high levels of loan loss reserve, high profitability, strong liquidity and capital position, which will help mitigate near-term risks.

The stable sector outlook reflects Moody’s view of credit fundamentals in the emerging markets banks sector over the next 12 to 18 months.

In India, continued government support for public sector banks would be positive for loan growth, supported by new equity injections in 2022.

“Despite maintaining lower reserve buffers compared to private banks, public sector banks can withstand problem loans growth without materially eroding their buffers,” the report observed.

The rating company however emphasized concerns over stressed assets for the country’s small & medium enterprises and retail loan segments. Corporate loan quality is likely to be stable with policy support for borrowers limiting asset quality deterioration.

Emerging markets banks will maintain loan loss reserve buffers built in 2020 that will mitigate risks of a moderate increase in nonperforming loans, following the expiration of support measures, recent inflationary pressures in the region and the weak job markets in some countries, Moody’s associate managing director Ceres Lisboa said.

“We expect the G20 emerging market economies will continue to present a solid recovery of 4.8% in 2022 and 4.3% in 2023, on average, with operating conditions reaching pre-pandemic levels in most countries,” Lisboa was quoted as saying.

Meanwhile, Moody’s expected tightening of monetary policy by the Reserve Bank of India and central banks in LatAm, Russia and Turkey given the rising pressure on inflation, despite downside risks to growth with pronounced negative real yields.



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Moody’s upgrades Yes Bank on improved financing health, BFSI News, ET BFSI

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Moody’s Investors Service Wednesday upgraded Yes Bank‘s credit rating citing improved financial health.

The global rating company provided a new grade of B2, a notch higher than its previous level B3.

The bank, which was once counted among top rated private sector lenders, remains in the high-yield category that has higher funding costs compared to lenders in the investment grade.

The rating company changed Yes Bank’s outlook to ‘positive’ from ‘stable’ earlier.

“Moody’s has upgraded Yes Bank’s issuer rating to B2 from B3 because its funding and liquidity have substantially improved in the past year, which have strengthened depositor and credit confidence in the bank,” it said late Tuesday.

It also promoted Yes Bank’s Baseline Credit Assessment (BCA) and Adjusted BCA to b3 from caa2, a two-notch improvement.

The outlook change reflected Moody’s expectations of further improvement to the bank’s credit profile, driven by a clean-up of legacy stressed assets and/or improvements to its capital and profitability.

“The rating action also reflects the fact that despite the significant economic challenges since the onset of the pandemic, Yes Bank’s asset quality has deteriorated only modestly while its capital has remained stable,” the rating agency said.

About one and a half years ago, Moody’s Investors Service downgraded Yes Bank’s rating following the Reserve Bank of India imposing a 30-day moratorium that prevented the lender from making payments to its creditors.

The bank had also gone through a management change with former co-founder Rana Kapoor now facing several legal charges.

Yes Bank’s deposits increased over 65% between 30 September 2021 and 31 March 2020, after Indian regulators rescued the bank. Its deposit quality has also improved; current and savings account and retail term deposits represent 45% of total funding as of 30 September 2021, compared with just 31% as of 31 March 2020.

The bank has reduced its share of market funding, while its average liquidity coverage ratio (LCR)improved to 118% as of 30 September 2021 from 40% as of 31 March 2020.

Yes Bank’s asset quality remains weak and continues to pose risks to its profitability and capital, Moody’s said.

Yes Bank shares were a tad lower to close at Rs 13.03 on BSE Tuesday.



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Moody’s affirms ratings of 9 Indian Banks, changes outlook to stable, BFSI News, ET BFSI

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Global rating firm Moody’s has affirmed the long-term local and foreign current deposit
ratings of Axis Bank, HDFC Bank, ICICI and State Bank of India at Baa3, following sovereign rating action. At the same time, their rating outlooks have been changed to stable from negative.

This rating action is driven by Moody’s recent affirmation of the Indian government’s Baa3 issuer rating and change in outlook to stable from negative.

Moody’s also affirmed the long-term local and foreign currency deposit ratings of Bank of Baroda, Canara Bank, Punjab National Bank and Union Bank of India. The rating outlooks of these banks has also been changed to stable from negative.

“The affirmation of Axis, ICICI, HDFC Bank and SBI’s deposit ratings and change in outlook to stable follows the change in outlook on the sovereign rating to stable,” Moody’s said in a statement. “The mail previous negative outlook on the sovereign rating drove the negative
outlook on these banks, because of strong linkages to the sovereign credit profile.”

The rating agency highlighted that the affirmation of state-run banks, reflect the fact that despite the significant economic challenges since the onset of the pandemic, their asset quality has only deteriorated modestly while capital has improved.

“Corporate asset quality has improved as legacy issues have been resolved while deterioration in retail asset quality was relatively moderate,” the agency said. Asset quality will further improve if economic activity continues to normalise.”



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Moody’s, BFSI News, ET BFSI

Banking & Finance

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The asset recovery Indian banks is set to get delayed as the second wave has crippled economic activity, says Moody’s Investor Services.

“For India (Baa3 negative), Moody’s projects the economy will return to growth in the fiscal year ending March 2022,” the global rating company said in a note. “But the severe second coronavirus outbreak will delay improvements in asset quality.”

Some of the Southeast Asian countries including Singapore, Vietnam and Malaysia appear to be better off with economic activities resuming.

The global economic activity will likely boost trade growth in Vietnam (Ba3 positive), Malaysia (A3 stable) and Singapore (Aaa stable).

“This will help offset domestic economic disruptions from the pandemic, although slow deployment of vaccines is a risk for Vietnam,” Moody’s said.

The asset quality risk is still looming large amid resurgence of coronavirus infections. The slower pace of vaccinating citizens will add to the woes.

Slow vaccination rates will hinder economic recovery, though to varying degrees, Moody’s said.

Unemployment rates have risen across the country going by the June quarter. This contributes to any jump in bad loans.

The growing young populations in economies such as India, Indonesia, Malaysia and Philippines could help accelerate economic expansion and boost overall wealth, which will lead more people to engage banking services, said the rating company.

“This, however, will depend highly on the governments’ ability to support domestic labour markets.”

However, extended support by central banks and governments can help fix any further dent in the economy.

“Continued policy support for borrowers from governments and central banks will prevent sharp increases in defaults on bank loans,” Moody’s said.

The financial impact of the prolonged pandemic for now is concentrated on a few economic segments, which will limit the deterioration of banks’ overall asset quality.

Moody’s expects non-performing loan ratios across ASEAN and Indian banks to remain broadly stable at 2020 levels over the next 12-18 months.



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Moody’s, BFSI News, ET BFSI

Banking & Finance

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The gross NPL ratios of five public lenders, including the State Bank of India (SBI) and Punjab National Bank (PNB), declined by 100 basis points at the end of 2020, in comparison to the year before. Moody’s attributed the rise in asset quality, specifically for five large public lenders, which also include the Bank of Baroda (BoB), Canara Bank and Union Bank of India (UBI), to various measures extended to borrowers.

“With the economy poised to recover, a sharp deterioration in asset quality is becoming less likely,” said Moody’s in its assessment, adding that net NPL ratios were further lower due to a build-up of provisions against legacy NPLs.

SBI’s gross NPL ratio between December 2019 and 2020 declined from 7% to 5%, whilst Canara Bank’s NPL ratio declined by 1% from 10% to 9%. BoB’s NPL ratio also dripped by approximately 10% to 9%, whilst PNB witnessed a decline from approximately 15% of NPL’s to 14.5%. Union Bank of India’s gross NPL ratio remained above 14% between the two periods, whilst however recording a decline in its Net NPL ratio from 6% to 5%.

NPL recoveries Stagnate
NPL recoveries however stagnated between April and December 2020, largely due to the COVID-19 pandemic during which IBC resolutions were also suspended till Mach 2021. “We expect recoveries will gradually pick up in the next few quarters as the economy recovers,” said Moody’s in its report.

Loan Restructuring
The five public lenders had also restructured 0.7%-2.6% of their gross loans. Moody’s said the restructured loans were lower than its expectations, attributing it to a lower impact of the pandemic on borrowers, than anticipated.

“Given that banks can restructure loans to micro, small and medium enterprises (MSMEs) until the end of March 2021, restructured loans could increase in the next few quarters. However, we do not expect any increase to be material because the bulk of necessary restructuring should have been completed by the end of 2020,” Moody’s added.

Union Bank of India had the highest share amongst the five public lenders, with restructured loans as a percent upto 2.5% of gross loans, followed by Canara bank which had approximately 2.3%. PNB and BoB’s restructured loans as % of gross loans stood at 1.6% and 1.3%, respectively – whilst SBI had the lowest share with 0.7% of gross loans.



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