New Delhi: Research and Brokerage firm Moodys released a report on Monday providing an alert for policymakers and bankers in the country.
Moodys Investor Services projects that non-performing loans across 14 countries in APAC (Asia-Pacific) region may witness an increase by 2022.
The aspect of non-performing loans or NPL is expected to be the highest in India and Thailand owing to failing economic conditions.
The agency observed in a note, "Credit costs will increase the most at banks in Thailand, India and Indonesia, which already had the highest credit costs in APAC before the pandemic. Nearly half of rated banks in Thailand and India are likely to make annual net losses during 2020-22."
Moody's also observed that in some economies, government guarantees and other support schemes may help reduce large NPLs. Although these may provide limited boost to capital for banks in APAC. Guarantees for SME loans which may protect jobs and drive consumption are also a recourse to reducing NPLs.
For banks, the Moody's report finds that pre-provision income may decline by as much as 5 to 10 percent in 2020 from 2019 due to a dip in interest rates across APAC economies and flattening in yield curves.
This could further result in deterioration of banks' profitability (measured on return on tangible assets) in years to come.
Higher credit cost and low revenue would drag banks ROTA by 0.05 percent to 2022. In 2022, this was estimated at 0.9 percent.
India along with Japan had the lowest ROTA at the start of the coronavirus outbreak.