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Compressed margins and bad debts will curtail profits in the coming year
Outlook for the banking industry in Asia Pacific turns negative as the region confronts weaker economic and trade conditions as well as the erosion of investor confidence

January 30, 2020 | Foo Boon Ping
  • The operating environment for the banking and financial service industry in APAC is expected to worsen as trade tension continues to weigh on GDP growth in the region
  • Beyond China, the growing level of household and private sector debts in other APAC countries is an emerging source of risk
  • Across the region, regulators are introducing new licensing frameworks for digital banks to operate, often with consortia of banks, fintech and big tech companies applying

China continues to cast a long shadow over the Asia Pacific (APAC) region. Deterioration in its ongoing trade dispute with the US has dampened business investment, economic growth and worsened the operating environment for banks in the region. In the short run, some South and Southeast Asian economies may benefit from production reshoring and the shifting of supply chains away from China, but will nevertheless be affected by persistent and sharp slowdown in the country. China’s economy has decelerated faster than expectations, growth slowed to an estimated 6.1% in 2019 versus 6.8% in 2018.

 “Developed Asia will still suffer from weak demand and a decelerating Chinese Compressed margins and bad debts will curtail profits in the coming year economy, while ASEAN with the exception of Singapore will continue to be the bright spot remarked Alicia García Herrero, the chief economist for Asia Pacific at French investment bank Natixis."

She added that 2020 is likely to be more uncertain and fraught with unanticipated event risks than the year before. "Since we started the year, we have already had two major shocks. One was a political shock, the US attack on Iran and Iran’s retaliation. China is a very large investor in Iran and a very large oil importer and I think that increasingly, the US administration is going to come after China in the realm of sanctions rather than ta...

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