Banks around the Asia Pacific region seem well placed to endure any moderation in home prices, reflecting tight regulations, prudent lending practices, and high household savings rates, according to a report published by Standard & Poor’s (S&P) Ratings Services.
Entitled “Could A House Price Correction Threaten Asia-Pacific Banks?” the report said it does not expect a deep, disruptive price correction in the region’s residential property that will lead to systemic risk for banks, despite the rise of home prices in most markets in recent years.
“We expect that the region’s stable economic outlook and rising household income — factors that have influenced average house prices to date — can sustain the market,” said Naoko Nemoto, S&P credit analyst.
“We believe that in the event of a downturn, most rated banks around the region have the capacity to absorb potential credit losses with limited impact on overall credit quality.”
The rating agency also noted other factors that support its view, such as the generally conservative underwriting standards in the region and the low unemployment rates.
It added that prime residential mortgage loans comprise a huge part of Asia Pacific banks’ mortgage portfolios and most legal systems in the region allow for full-recourse loans, which should protect the banks in the region to some extent.
It also warned that a more severe downturn could pose a greater threat to the region’s banks.
“As events in the US and other markets have demonstrated, if there is a sharp drop in average house prices around the region, multiple sectors of the economy could suffer, potentially leading to a surge in credit losses across various asset classes,” Ms. Nemoto said.
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