Bad loans rising up to Asian financial crisis levels?
Market fears over imploding Europe banking crisis that could possibly raise credit costs for Asian banks.
While the fear have some grounds given the worsening situation in the West, CIMB explains why rising NPLs unlikely a grave concern.
Here's from CIMB analyst Kenneth Ng:
Post-1Q12 banks’ reporting season, the Street has already raised earnings by ~5%. The Street and us have refrained from extrapolating from 1Q’s superb performance.
Although earnings estimates were raised, they have generally built in expectations of some slowdown in loan growth and modest margin improvement, while nobody expects 1Q’s treasury-related gains to be sustained.
With P/BV valuations of 1.1x-1.3x for the three banks, the market appears to be pricing little growth expectations either. The investment thesis for Singapore banks at this stage is whether the environment is going to turn drastically worse for Asian corporates and investment markets.
Although we have been a big bear on the markets (calling for a potential Europe banking crisis and a potential US$ currency crisis since early 2011), we are also clear that Asian corporate balance sheets, Asian banks’ liquidity positions and leverage are quite different from the western world.
While it is fair to assume that the imploding Europe banking crisis will raise credit costs for Asian banks as well, we think it is also fair to assume that the coming downturn is unlikely to trigger signficiantly higher NPLs for Asian banks (vs. GFC levels) nor drive credit costs up for the Singapore banks to Asian Financial Crisis levels.