The possibility of a drastic erosion in bank capital in the next two years

Mumbai, Ta. 30 November 2020, Monday

Moody's Investor Services said on Monday that emerging Asian banks will face a capital shortfall in the next two years, unless new capital is pumped into India, which could lead to a sharp erosion in bank capital. Uncertainty over asset quality poses one of the biggest risks facing emerging market banks as operating conditions will remain challenging amid the Corona epidemic.

The outlook for emerging market banks is negative in 2021, while the position for insurers appears to be stable, according to a Moody's report.

The growing non-performing assets of banks and the volatile investment portfolios of insurance companies are currently at the center of the Asia-Pacific region. Asia will see a significant decline in capital over the next two years, and India and Sri Lanka will see a sharp erosion of capital if new capital does not come.

Severe shocks to the economy and poor performance of some types of loans will lead to an increase in NPAs in Indian and Thai banks.

The lending capacity of non-banking financial companies (NBFCs) in India will decline, Moody's report also noted.

Profit growth will be lower due to lower interest rates and weak lending, but lower volume of loans will support capital, the report said.