Banks to post larger capital declines without support: Moody’s

Banks in India are expected to post larger capital declines without public or private injections, Moody’s Investors Service said in a report.

In its 2021 outlook for financial institutions amid Covid-19 recovery, Moody’s Investors Service said that capital will moderately fall in emerging Asia over the next two years.

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“Capital will moderately fall in emerging Asia over the next two years, and banks in India and Sri Lanka will post larger capital declines without public or private injections,” it said in a statement.

It cited moderate and uneven economic recoveries amid the coronavirus pandemic as well as political and trade uncertainties pose risks for financial institutions in emerging markets throughout Asia, Latin America, Europe, the Middle East and Africa in 2021.

Overall, the outlook for banks is negative, while insurers are more stable, as the lockdown from the pandemic has resulted in one-off gains in profitability, although pressures on capital are increasing.

“The uncertain trajectory of asset quality is among the biggest risks for banks as operating environments remain fragile amid ongoing health concerns,” said Moody’s Managing Director Celina Vansetti-Hutchins.

“Profit growth will be modest because of low interest rates and subdued lending, but lower loan volumes should aid capital. Additionally, banks’ lending and funding shifts in response to flatter yield curve dynamics and low rates will also pressure net interest margins.”