(The following was released by the rating agency)User
May 23, 2011--Banks around the Asia-Pacific region appear
well placed to withstand any moderation in house prices,
reflecting prudent lending practices, tight regulations, and
high household savings rates, according to a report published
today by Standard & Poor's Ratings Services, titled "Could A
House Price Correction Threaten Asia-Pacific Banks?".
While house prices have escalated in many markets around the
region in recent years, and there is scope for a correction in
some "hot" areas, Standard & Poor's does not currently
anticipate a deep, disruptive price correction for the region's
residential property that could lead to systemic risk for
"We expect that the region's stable economic outlook and
rising household income--factors that have influenced average
house prices to date--can sustain the market," Standard & Poor's
credit analyst Naoko Nemoto said. "We believe that in the event
of a downturn, most rated banks around the region have the
capacity to absorb potential credit losses with limited impact
on overall credit quality."
Other factors supporting Standard & Poor's view include the
region's generally conservative underwriting standards and low
unemployment rates. Standard & Poor's also notes that prime
residential mortgage loans form a large part of Asia-Pacific
banks' mortgage portfolios and most legal systems in the
Asia-Pacific region allow for full-recourse loans, which should
protect the region's banks to some extent.
Standard & Poor's does not anticipate a material
deterioration in the credit quality of the region's home loans
expects under a stress scenario resulting in a 20%-30% price
correction in house prices coupled with a 100 basis point
interest rate hike for each system, or any subsequent
substantial impact on ratings on Asia-Pacific banks.
While not anticipated, Standard & Poor's acknowledges that a
more severe downturn could pose a greater threat to the region's
banks. "As events in the U.S. and other markets have
demonstrated, if there is a sharp drop in average house prices
around the region, multiple sectors of the economy could suffer,
potentially leading to a surge in credit losses across various
asset classes," Ms. Nemoto said.