Default risks, peaking margins push APAC banks into a 'mixed baq' situation

Whilst the majority of emerging market banks in Asia Pacific are expected to log better financial results in 2024, unique hurdles in loan defaults, credit growth, or net interest margins will engulf each banking system over the next 12 months, Fitch analysts said in a report.

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The one exception is China, whose outlook is deteriorating. The government has enacted policy measures to support its economy, which is expected to weigh on system growth and profitability in 2024. The negative impact, however, will be felt less by the country's domestic systemically important banks that the Fitch agency rates.

Thailand: high risk of defaults

In Southeast Asia, Thailand is notably one of the banking markets that faces a challenging 2024, with structural issues pushing up credit risk in the market.

Thailand's household leverage, at 89%, is one of the highest amongst emerging markets globally. S&P Global Ratings warned that it has reached "unsustainable levels" and leads to elevated risk of default.

"Credit risk remains heightened due to structural issues. These include high household debt and corporate debt as well as pre-existing weaknesses in the small to midsize enterprise (SME) segment," S&P primary credit analyst, Deepali V Seth Chhabria, said in his report.