KUALA LUMPUR, July 13 — The challenging economic and credit conditions stemming from the Covid-19 pandemic will weigh on the asset quality and profitability of Asean and Indian banks, according to Moody’s Investors Service in a report.

The report entitled "Banks-Asean and India: Asset quality, profitability will weaken as economic challenges grow”, the rating agency said it would likely result in the contraction of gross domestic products (GDP) of most Asean economies and India 2020, before gradually recovering next year with the relaxation of lockdowns and resumption of economic activity being the key factors supporting the recovery.

Its vice president and senior credit officer Eugene Tarzimanov said in Asean and India, bank downgrades in 2020 have been driven by Indian banks, following the downgrade of the sovereign in June.

"That said, the majority of the banks in the region are well-positioned at their ratings, despite a higher share of negative outlooks on bank ratings,” he said.

Moody’s he said, expected asset quality and profitability would deteriorate from good levels in 2019 across most banking systems, with Singapore, Malaysia and the Philippines having the best asset quality with non-performing loans below two per cent.

He added that while government support measures would offset some of the pressure on banks, they would not fully eliminate the negative impact.

Meanwhile, Moody’s said it expected bank’s funding and liquidity to remain sound and stable in 2020-21 despite the challenging outlook as the majority of banks are adequately capitalised.

For instance, regulators in India, Thailand and Vietnam have restricted bank dividends, a credit positive for banks, while the largest banks would continue to benefit from deposit inflows as they are seen as safe-haven in times of stress. — Bernama