The severe acute respiratory syndrome (SARS) epidemic is likely to have only a transient impact on the banking systems of Greater China and Singapore unless the situation deteriorates sharply, Moody's Investors Service said yesterday.
The global credit-rating watchdog said bank liquidity will rise with consumption falling, while profitability and asset quality are expected to deteriorate. The US economic recovery will also be crucial in how banks fare in SARS-affected Asian economies.
Moody's said the ratings outlook for banks in Greater China -- China, Hong Kong and Taiwan -- as well as Singapore remained stable.
"However, concerns about potentially deeper impacts on the banks will increase, should the illness continue to spread and its presence prove protracted," it said in a statement.
"At the same time, SARS is likely to materially impact the region's economies, as evidenced by the already significant disruptions to business and investment," said Wei S. Yen, the author of the report and a Moody's vice president.
Moody's said that in Greater China and Singapore, bank profitability and asset quality are expected to deteriorate in the coming months to varying degrees as a result of SARS. Liquidity should rise due to the uncertainties the illness is generating and the resulting fall in consumption.
Given current information and the assumption that SARS can be largely contained, the Moody's report concludes the impact on the region's banks will be evident, but likely to be temporary.
Moody's said it would continue to monitor the situation.