Fitch: Expect Near-Term Losses for APAC Banks
Rising sovereign yields are expected to hit lenders in Asia Pacific and generate near-term losses, according to Fitch Ratings, with Hong Kong underlined amongst the particularly risk markets.
Strong historical correlations between banks’ valuations available-for-sale (AFS) securities and domestic yields will hit balance sheets in Asia, according to the report, underlining the mirroring effects of a rise in U.S. yields.
U.S. 10-year Treasury yields have more than tripled since bottoming in August 2020 to the current level of 1.67 percent.
Highest Correlated Markets
Of the banking markets in the region, Hong Kong, India, Indonesia, Malaysia and Taiwan as those with AFS securities portfolios most correlated with domestic yields.
Still, Fitch expects rated banks will remain capable of absorbing «minor» capital declines.
In Hong Kong, Indonesia and Malaysia, the effects are forecasted to cause a 25-40 basis points (bps) rise while Indian banks are expected to see a less than 20 bps rise in the first quarter. This compares to the 81 bps increase the U.S. has seen year-to-date.
