KUALA LUMPUR (March 22): Asia Pacific banks tend to have more conventional models relative to those of global peers that recently failed or had to be rescued, according to S&P Global Ratings.

In a statement on Wednesday (March 22), the rating agency said this could shield the region’s banks from some of the market turmoil emanating from such events.

Nonetheless, it said second-order effects, such as tighter financing access and higher risk premia demands, could hit the region’s credit markets and borrowers.

S&P Global Ratings analyst Eunice Tan said contagion behaviour is difficult to predict.

“The turmoil from the events that began in the US have yet to spill over to Asia Pacific,” she said.

In a report titled “Credit Conditions Asia-Pacific Special Update: Why Asia-Pacific Banks Are Shielded From Current Turmoil”, S&P said recent troubles for the US regional banking sector and Credit Suisse have shaken confidence.

“We have not seen any meaningful contagion spillover into the Asia Pacific.

“That said, second-order effects, such as tighter financing access and higher risk premia demands, could hit the region's credit markets and borrowers,” said Tan.

The report added that Asia Pacific banks tend to be conventional broad-based commercial and retail lenders.

It said they have typically diversified deposit bases and have less exposure to complex business lines, compared to some banks in other regions.

Despite significant variation between interest rate regimes across Asia Pacific, interest rate risk appears satisfactorily managed by most rated institutions, it said.

The report also said that China’s recovery after exiting Covid could peter out, dragging on Asia Pacific’s growth momentum.

It said that concurrently, slower global demand could weigh on the region’s export-centric economies and borrowers’ creditworthiness, in turn weakening banks’ asset quality.