Asian banks' bad debt pile highest since global financial crisis

HONG KONG/BENGALURU (Reuters) - Bad debts at Asian banks have climbed to their highest since the global financial crisis and the trend will likely worsen as regional economies battle against China’s slowdown and volatile oil and commodities prices, a Reuters data analysis shows.

The bad loans pile at 74 major listed Asian banks, excluding Indian and Japanese banks, reached $171 billion at the end of 2015, the survey of banks showed, the highest since at least 2008. Non-performing loans (NPLs) jumped 28 percent from a year earlier, nearly twice the growth in 2013.

Indian and Japanese banks were not included as their fiscal year ends in March.

With economic growth in the region slowing, analysts expect the asset quality of Asian lenders will continue to deteriorate as banks start publishing quarterly earnings, forcing them to make writedowns that will hurt profit and depress valuations.

Asian central banks have cut interest rates to ensure abundant liquidity, but uncertain economic growth and weak export demand will likely lead to more loan defaults in the near term, analysts and bankers said.

“We expect asset quality to weaken and bad loans to increase ... the key factor we see is Asia entering into more challenging phase of the credit cycle,” said Gene Fang, Moody’s associate managing director for financial institutions group.

“In the recent past, we saw relatively strong growth and low interest rates, which encouraged loan growth and higher leverage. But growth has now weakened, most significantly in China, which is impacting the rest of the region.”

The average ratio of bad loans to gross credit for 29 Asian banks for which this data is available stood at 1.9 percent last year - the highest since 2009, the survey showed. In 2008, the ratio stood at 2.5 percent.

In China, where the economy grew 6.9 percent in 2015 - the weakest pace in a quarter of a century - bad loans surged to a decade-high at the end of December, with Moody’s expecting continued asset quality pressure over the next 12-18 months.

Top Chinese lenders including Industrial and Commercial Bank of China 601398.SS, Agricultural Bank of China 601288.SS and Bank of Communications 601328.SS, will report March quarter results next week.

Last year, the total bad debt pile for all listed and unlisted Chinese banks stood at $297 billion.

Japanese banks’ average ratio of bad loans to gross credit stood at 2.5 percent at the end of last year, a slight improvement from 2.7 percent at the end of 2014, Thomson Reuters data showed.

In India, where the central bank is forcing a debt clean-up, total distressed debt surged nearly a third between September and December to $120 billion. The March quarter will probably show a further increase, analysts said.

Thailand's fourth-largest bank Kasikornbank KBANK.BK, which published quarterly results on Wednesday, expects the ratio of non-performing loans to total loans to rise to 3.5–3.6 percent this year from 2.7 percent last year, Admit Laixuthai, a senior vice president at the bank, told Reuters.

“NPLs for the whole banking system are likely to rise further this year as the overall economy remains weak … I can’t tell when NPLs will peak. It depends on the economic situation.”

Additional reporting by Manunphattr Dhanananphorn in BANGKOK; Editing by Lisa Jucca and Jacqueline Wong