Moody’s Investors Service yesterday lowered its outlook from “positive” to “negative” on banking systems in the Asia-Pacific region, including Taiwan, as the COVID-19 pandemic constrains business activity and increases their asset risk.
Moody’s expects the operating environment for these systems to deteriorate significantly as a result of virus-related disruption, it said, adding that widespread business defaults and restrictions on social interactions would drive the global economy into a contraction.
Moody’s also expects the hotel, restaurant, airline, automotive and retail sectors to be the most severely hit, and that small and medium-sized enterprises would be particularly vulnerable.
If disruptions from the outbreak extend beyond the first half of this year, the credit effects on banks could be material, it said.
Although governments have introduced measures to shore up affected businesses and mitigate the negative effects on employment and households, Moody’s said it did not think the measures would be sufficient to fully offset the adverse effects of the virus-induced downturn on banks.
The economic and market upheaval caused by COVID-19 would depress business activity and increase banks’ asset risk, while credit costs would rise, it said.
As a result, bank profitability would decline, partly weighed by lower interest rates, it added.
Moody’s already had a “negative” outlook on banking systems in Hong Kong and Japan, which remain, it said.
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